Guide to personal loans for bad credit

When it comes to finances, everybody needs to reach a goal, cover an emergency, or get unstuck from a rut sometimes. Loan options are admittedly fewer for borrowers who have bad credit. It might be harder to find the right opportunity, but it’s definitely out there. You just need to learn where to find it.

Here’s what to know about getting a personal loan when you have bad credit.

Can you get a personal loan with bad credit?

Yes, it’s possible to get a personal loan with bad credit. When you apply for a personal loan, your lender checks your credit profile. Different lenders have different criteria, so a lower number isn’t always an obstacle.

You’ve got more than one option for borrowing loan with bad credit: 

• Lender that offers loans for bad credit borrowers. These loans often have higher rates than loans for borrowers with good credit. However, they could help you to accomplish your goals for borrowing, such as consolidating debt. 

• Loan with a well-qualified co-signer. You could ask someone with good credit to co-sign your loan. That could help you get a cheaper loan than you'd get on your own. Your co-signer doesn’t get access to the borrowed money (unless you give it to them) but they’re responsible for repaying the loan if you don’t. 

• Secured loan. When you offer the lender something valuable as a guarantee that you’ll repay the loan, it could be easier to qualify. When you borrow against collateral, the lender has a financial safety net. If you don’t repay the loan, the lender can sell your collateral to get their money back. 

• Home equity loan. Mortgages, including home equity loans and HELOCs, are secured loans. Borrowing against your home can be easier than getting a regular personal loan, which is only guaranteed by your word and your credit standing. The downside is that if you don’t repay the loan you could lose your home.

Your best strategy is to get to know all the options—including the loan terms and fees—before you make a decision. Some bad credit personal loans have terms that are so unfriendly to the borrower, it’s not worth taking the loan. For example, most people who take payday loans can’t afford to pay it off when it’s due. They end up renewing their loans multiple times, and paying a lot in interest and fees. Steer clear of borrowing options that could make your financial situation worse.

What is bad credit and what does it mean for loan eligibility?

Personal loan lenders look at your credit. A lower credit score can raise red flags. 

Lenders have different definitions of good vs. bad credit. A credit score below 580 or so is generally considered bad. You'd ideally want a credit score in the mid-600s or higher before you start looking at borrowing options.

If you have a credit score that a lender considers bad, the lender may decide the risks of giving you a loan are too high. Or a lender may approve a loan but charge a very high rate. Lenders do this because a bad credit score suggests you’ve had some problems paying your loans and they’re safeguarding against the loss of money in case this happens again. 

How to improve your chances of getting personal loans with bad credit 

You’ve got many options to improve your chances of qualifying for loans with bad credit. Some strategies include:

• Co-signer or co-borrower. If you know someone with good credit who’s willing to apply with you, the lender will consider their credit and income. You'll have a better chance of getting approved for a loan at a good rate, and you’ll have more choices for lenders. Co-signers take responsibility for repayment. Co-borrowers take responsibility for repayment and also get equal access to the borrowed money.

• Secured loan. A secured loan is backed by collateral. This means something valuable you own guarantees the loan. Getting approved is often easier, because the lender is taking on less risk. Secured personal loans are uncommon but they’re out there. You might consider this option if you have an asset account that you don’t want to borrow from but could offer as collateral, such as a Certificate of Deposit account that hasn’t matured yet.

• Payday Alternative Loan. If you’re a credit union member, more than 400 federal credit unions offer small personal loans with far friendlier terms than traditional payday loans. Usually, loan approvals are based on your income, not your credit rating. If you pay on time and the lender reports your payments to the credit bureaus, the PAL could help you improve your credit standing.

• Lenders offering bad credit personal loans. Some lenders specifically market loans to borrowers with bad credit. Compare these options to the ones above so that you can choose the option that’s the best deal you can get. 

You may need to do some research to find a lender who allows a co-signer or who offers payday alternative loans. But you do have options out there, so keep looking. 

Costs and fees on bad credit personal loans 

Bad credit personal loans do exist, but they’re usually more expensive than loans for borrowers with good credit. 

The average personal loan rate was 11.57% for a 24-month loan in May 2025. You can expect bad credit personal loans to have a higher-than-average interest rate. 

Compare your loan rate with other borrowing options like credit cards. Personal loans tend to be cheaper than credit cards—but this may not be the case if your credit score is low.

Find out about fees. Some costs to research include:

• Origination fees

• Late payment fees

• Early payoff penalties

The more fees you agree to pay, the more expensive borrowing becomes. If a lender is offering a very high rate or high origination fees, look elsewhere to explore all your options. 

Step-by-step guide to applying for personal loans with bad credit  

Here’s a step-by-step guide to applying for personal loans with bad credit. 

1. Check your credit score 

It’s helpful to know exactly where you’re starting from. You can check your credit reports once a week for free by visiting AnnualCreditReport.com. If your report has any inaccurate information, dispute errors with the credit bureaus. You may even want to ask past creditors if they'd remove negative info as a gesture of good will. There's no guarantee, but it doesn't hurt to try.

2. Decide how much to borrow 

You need to borrow enough to accomplish your goals, but you don't want to borrow more than necessary. Otherwise, you'll spend more in interest than you have to. Also, small personal loans for bad credit may be easier to get since the lender takes less risk in lending a small sum. 

3. Find out if someone will co-sign 

A co-signer opens up more doors for you to borrow affordably. Your co-signer will share legal responsibility for the loan. Be sure you can pay it back to avoid damaging their credit.

4. Take stock of your assets 

Applying for a secured loan boosts your approval chances. However, you need to own assets to act as collateral and guarantee the loan. That means the lender can take them if you don't pay back the loan. Savings accounts, boats, RVs, and jewelry are examples of assets. 

5. Find out about personal loans for bad credit 

Research different lenders and the options. These could include secured loans, payday loan alternatives, and unsecured personal loans from lenders that work with bad credit borrowers. 

6. Submit your application 

Most lenders allow you to apply online. You'll usually need to provide basic details about your income and your Social Security number so the lender can check your credit. If you're applying with a co-signer, include their financial details too. 

7. Wait for loan approval 

Many lenders offer a decision within minutes.

8. Review your loan offer 

Your lender will tell you much you can borrow, the rate, and the fees you'll need to pay. Review the details carefully to make sure the loan is a good deal.

Once you’ve agreed to the loan offer and signed the paperwork, the lender will send your money. You can start using the funds and work on paying back the loan on time. 

Benefits of getting loans with bad credit 

There are some benefits to bad credit personal loans. Some of the biggest advantages are that you can:

• Consolidate other debts. If you qualify for a personal loan at a lower rate than existing credit card or payday loan debt, paying off these other loans could be cheaper. You can also simplify the payment process if you use a personal loan to pay off multiple existing debts. 

• Cover emergencies or essential purchases. If you have something you must pay for but don't have the money, a personal loan could come in handy. Even bad credit personal loans may charge lower rates than credit cards. Borrowing this way could be more affordable when you have an important expense. 

• Build credit. Your personal loan is a new type of debt on your credit record. Having a mix of different kinds of debt improves your credit score. Making on-time payments will also go on your credit record, helping you improve your payment history and eventually raising your score. 

It's worth looking into easier-to-get personal loans with bad credit to find a loan that brings you these benefits.

How to avoid predatory lenders and scams 

Learn to recognize the red flags that signal predatory lenders and scammers that advertise loans for bad credit. You may get a loan, but it will probably come with very unfavorable terms. Some so-called loan offers are really payday loans with sky-high interest rates. A very real danger is that you’ll end up trapped in a revolving cycle of debt.

Here’s how to avoid the bad lenders:

• Look at the annual APR. This is the total cost of borrowing for the year, including fees. It should be as low as possible, and ideally below 30%. 

• Review fees. Your lender should provide a detailed list of fees for your loan. If the lender won't disclose fees, walk away. 

• Compare loan offers. Get several quotes from different lenders offering personal loans with bad credit. This will help you avoid scams. If one lender is charging much more than others, that's a red flag.

• Read customer service reviews. Check to see what other borrowers have to say about the lender.

• Check the company rating. Research the company on the Better Business Bureau website. 

It’s worth taking a few minutes to complete these steps to make sure you don't end up with bad credit personal loans that hurt your finances over the long term. 

Building credit with a bad credit personal loan 

Personal loans have the potential to help borrowers with bad credit to improve their credit score. If you get approved for a loan and repay it on time , you could develop a positive payment history—the most important factor in your credit score. 

A personal loan also adds an installment loan to your credit record—another boost to your score if you don’t already have this kind of loan. Types of loans are also key in credit scores. 

If you consolidate accounts, you might want to keep them open. The credit bureaus consider the average age of your accounts and the total length of your credit history when they calculate your credit score. Closing old accounts could leave you with less available credit and a shorter history. Both could harm your score.

Pro tip: If there’s a chance that you’ll run up new debt on credit cards, close the accounts while you’re paying off your personal loan. Leaving accounts open to age could backfire if it makes your financial situation worse.

Use these tips to gradually improve your score over time. As your score settles into a more comfortable range, you may not need to research bad credit loans.