A report by Experian revealed that nearly one third of Americans have a subprime or low credit score.¹ That means, on a scale of 850, they average a credit score between 300 and 670. Unfortunately, a FICO credit score below 580 is considered to be bad. And a bad FICO score tends to lead to a higher APR for loans and credit products. Which makes it difficult to get a personal loan that works in your budget. This is just one of the cons of having a poor credit history. Some borrowers with a low credit score have a difficult time even being accepted for loans and online credit products from lenders.
Finding a Lender For Bad Credit Loans
People with lower credit scores and less credit history may experience difficulties qualifying for personal loans, but they may still have several loan options available. There are many financial products and lenders designed for borrowers with bad credit. Applying for loans for bad credit online and repaying them on time can be a great way to potentially improve your credit score and get a lower APR if your payments are reported to the credit bureaus. To understand the value of these loan options, this article offers a bit more detail on the people who can benefit the most from them. Bad credit personal financing options aren’t for everyone. But there are many people in America that need access to unsecured personal loans even with bad credit. After all, it doesn’t seem fair that having a low credit score makes it more difficult to get the personal loan or financial product you need. And it can be just as difficult if you have no credit score at all.
Roughly 11% of the American population does not have a credit score²—referred to as “credit invisible”. This borrowing group faces even more financing difficulty when getting personal loans or credit access than those with bad credit scores. Like the cons of having a low credit score, no credit score can also mean a higher loan APR. If you’ve tried to get a loan without having a credit history, you’ve already discovered these difficulties. The odds are not in your favor until you begin to build a credit history. Once you’ve established a credit score and have several items on your credit report, getting a loan will be much easier. The first step is to familiarize yourself with the credit bureau’s methodology for how credit scores are created so you can fix yours.
16 Different Fast & Easy Personal Loan Options
Fortunately, several lenders offer loans for poor credit. You can even find online loan options that don’t require any credit check, which can benefit the credit invisible group. If you do your research, you may find a lender offering a reasonable APR (annual percentage rate), low fees, and a perfect payoff amount that works with your annual income. You may even be able to find a good debt consolidation loan that you can use to pay off all of your other debts.
Debt consolidation can be a great option for simplifying your finances if you find the right one. But be careful and do plenty of research online to reduce your risk and avoid a potential scam from predatory lenders. Doing your homework and researching lenders is the best way to ensure a good customer experience. It’s unfortunate, but some lenders aim to take advantage of borrowers. These lenders may offer extremely high APRs, prepayment penalties, and lump-sum repayments. Keep your eyes open when researching which types of loans and lenders you’re interested in.
Where Can I Get a Personal Loan?
The world of personal finance can be overwhelming at times. If you’re currently wondering how to get a loan with bad credit, or how to apply for a loan in general, you’ve come to the right place. CreditNinja has all the info you need to make your loan shopping process simple and straightforward. Applying for and getting a loan shouldn’t have to be a scary process. CreditNinja is here to help.
Keep reading to find out more about the best loans for poor credit, and to find a perfect solution for your personal loan situation—even if you have a below-average credit score. Luckily, there are plenty of lenders, online and at storefront locations, that may be able to help you out. And many online lenders offer quick and convenient loan applications.
Here is a comprehensive list of online bad credit loan options:
1. Loans with a Co-Signer
A convenient way of securing a personal loan (if you have a bad credit score or nothing on your credit report), is getting a co-signer who has an excellent credit score. In such a case, a co-signer with a great credit rating offers a layer of security for the lender by committing to pay in case you default on your personal loan. This means less risk for the lender. But as with anything, there are pros and cons. The largest borrowing advantage of a loan for bad credit is that a credible co-signer increases your chances of getting a loan contract with reasonable terms and rates.³ You may be able to get a much better APR (annual percentage rate) and payoff amount, or a lower origination fee with a cosigner. Co-signers can be used for many different types of products including auto loans, student loans, home equity loans, and home equity line of credit products.
What If Your Loan Was Rejected?
Getting personal loans with bad credit isn’t easy, but it is possible. If your loan application was rejected due to a bad credit rating, a co-signer can help you in securing a personal loan. Also, if you get a bad credit personal loan with unfavorable rates, a re-application with a credible co-signer might give you a better APR. This is because lenders know that a borrower with a good credit score is more likely to repay a personal loan. Your co-signer’s good credit adds security for the lender.
Your spouse, guardian, parent, any other close relative, or even a friend can be a co-signer to help you build your credit score. Whoever you select, make sure that person has a good-to-excellent credit score, a regular income, and they’re fully aware of the responsibilities of being your co-signer. Taking on the responsibility of loan payoff is not to be taken lightly, whether it’s for personal loans for poor credit, debt consolidation loans, auto loans, or credit cards.
If you do choose this option, it’s wise to set up autopay for your payments, so you never miss a due date. This can save you and your co-signer from unnecessary fees in the long run. A co-signer for a personal loan can be a great way to get the money you need, but it’s a big responsibility for you and the co-signer. So make sure you pay on time to avoid hurting your credit, and the credit of your co-signer.
Getting a loan with a co-signer has its pros and cons like any other loan. Before you make your decision and apply for one, make sure to do your homework.
2. Joint Loans
A personal loan with a co-signer has some similarities and differences with a joint personal bad credit loan (a personal loan with a co-borrower). But both types of personal loans can be used by people with a bad credit score. And lenders for bad credit may offer both options, but that will depend on the specific lender. You also may be able to find joint personal loans and lenders online.
In a joint personal loan, the co-borrower shares the responsibility of repaying the loan with you right from the start and receives part of the loan amount as well. On the other hand, co-signers are not entitled to any share of the loan amount and will only make payments if you (the primary borrower) happen to default. Possibly affecting the credit of the co-signer as well as the credit of the initial borrower.
Can a Co-borrower With Good Credit History Help Qualify for a Loan?
One similarity between joint and co-signed personal loans from online lenders is that the credit score of your co-signer or co-borrower can help you qualify for a personal loan with better terms or lower APR and rates. After all, better credit scores equal better APRs.
Just as co-signers have to repay the personal loan when primary borrowers default, a qualifying joint borrower must make the full monthly payment for an existing joint personal loan when the other joint borrower defaults. It’s important to discuss all of the terms and conditions with your lender before signing for either of these loans. Lenders are required to disclose all of the terms, rates, APRs, and repayment information for a personal loan, so make sure to ask questions.
3. Unsecured Loans for Poor Credit
Personal loans, particularly unsecured loans, are arguably the fastest-growing mode of consumer lending in the U.S. According to an Experian study this type of debt grew 97% from 2015 to 2019.4
This means personal loans are more readily available than ever before. And personal loans for bad credit may offer the APR and loan amount you need for your specific budget. Typically you can find many online lenders offering this type of loan product. So if you happen to be struggling securing loan funds due to your credit score, personal loans for bad credit may be one solution.
What About an Online Loan for Borrowers With a Low Credit Score?
You can receive an online personal loan from banks, online lenders, a credit union without any collateral and be eligible for lower rates and a reasonable APR. These unsecured loans require no guarantees, unlike a secured loan, which requires some form of collateral or guarantee. If you have bad credit, a secured personal loan may be easier to access and help you to be approved for debt consolidation.
Some lenders also allow you to apply for unsecured personal loans for people with a bad credit score online. While these bad credit loans normally come with higher interest rates or payment terms than loans for people with good credit, they can be cheaper to repay than car title or payday options. It may be ideal for people with bad credit. Just make sure you pay attention to the specific lenders, and the APR and origination fee no matter which type of loan or lending company you choose. And it’s always wise to make sure there aren’t any prepayment penalties.
Personal bad credit loans can offer larger amounts than car title or payday options and usually come with longer repayment periods. Repayment on a reputable personal loan can last up to a period of 84 months, or longer, with loan amounts ranging from $100 to $100,000 and fixed or variable interest rates.5 Most of these options also offer autopay capabilities to help you avoid missed or late payments. Personal loans for bad credit can be much more versatile and flexible than some other options for fast cash.
The APR (annual percentage rate) for personal loans varies based on your credit score, ranging from an average of 9.3% to 22.16%.6 However, having a very low credit score may mean even higher APRs. But applying for these loans can help out in a pinch if you need to make rent or you have unexpected bills pop up. The most important part is knowing how to get a trustworthy loan so you don’t make your situation more difficult. CreditNinja is here to help make the choice a little easier.
4. Peer-to-Peer Loans for a Poor Credit Score
Also known as marketplace lending, peer-to-peer lending helps individual investors fund individual borrowers.
Requirements for this type of loan vary—although P2P lenders might not closely analyze your credit. Like personal loans, reputable peer-to-peer loans typically offer lower interest rates than car title or payday products. In some cases, you can also get larger loan amounts and longer repayment periods. Peer-to-peer loans could potentially be a more affordable option offering a better customer experience. But that doesn’t mean that Peer-to-peer lending doesn’t have its cons as well.
What You Need To Know as a Borrower: Best Options
The process of applying and borrowing from an online peer-to-peer platform usually involves these steps:
- You submit a multi-step application that may include a credit check for eligibility and creditworthiness. Oftentimes, the loan application can be completed online.
- The platform shows you your possible interest rate, APR, origination fee, and payoff amount for borrowing so you can decide whether to proceed to the funding stage.
- In the funding stage, individual investors review your loan request and decide whether to fund it.
Once your loan is successfully funded, you will then move to the repayment stage and begin making regular monthly payments for the life of the loan. Ensure you are familiar with the full payoff amount, including principal, interest, origination fee, and other charges.
Each payment that you make is divided among the individual investors or institutions who funded your loan. Each investor gets a proportional share based on their contribution.
The Various Types of P2P Loans (Peer-to-Peer Lending) You May Be Eligible for Include:
- P2P Personal Loans
Borrowers typically use these types of loans to buy cars, pay medical bills, consolidate debt, and meet other personal expenses. Personal loans for people with bad credit scores are normally easier to access through social lending platforms since they typically don’t have strict requirements, unlike traditional financial institutions.
- P2P Business Loans
These loans can take care of start-up expenses, facility maintenance, repair, marketing, product launch, or fund other business costs. Social lending groups are a convenient funding source for business loans since potential borrowers can present their business proposals to multiple investors. This increases the chances of loan approval and funding.
- P2P Student/Educational Loans
These are usually lump-sum loans and give borrowers the flexibility to use the money for a variety of school expenses. If you cannot get federal student aid, social lending platforms can offer inexpensive alternatives for student borrowing.
5. Payday Alternative Loans (PALs)
Payday alternative loans (PALs) are short-term loans normally offered by some federal credit unions and some in-personal and online lenders. They normally have lower interest rates, different credit requirements, interest rates, and fees than ordinary payday options. PALs must meet the following requirements set out by the National Credit Union Administration (NCUA), which controls federal credit unions in the United States7:
- Interest rates cannot exceed 28%, although interest rates may vary during the life of the loan.
- The loan amount must range between $200 and $1,000.
- Borrowers must repay the loan within a period of one to six months.
- The application fees must be less than $20.
- Each accepted borrower with a bad credit score can receive up to three PALs within a six-month period, without any PAL overlap or rollover.
6. Payday Alternative Loan II (PAL II)
The PAL II is an additional alternative bad credit loan option for borrowers. This new PAL provides similar protections as the original PAL but offers higher loan amounts and longer monthly repayment periods. The funded loan is offered by some federal credit unions. PAL II must meet the following requirements set out by the National Credit Union Administration (NCUA)8:
- Loan amounts up to $2,000.
- Repayment periods ranging from one month to 12 months.
- A Federal credit union can offer the loan immediately when borrowers establish membership.
- The lender can offer only one type of PAL at any given time.
- Title Loans for Bad Credit
If you have bad credit, car title loans are usually one option borrowers can apply for, if they own a vehicle. While they may seem like a good alternative for borrowers, getting one can be quite costly. A high interest rate, origination fee, and other charges make these loans quite expensive. They’re also secured, meaning you must offer collateral to be approved, as opposed to unsecured options that only require a promise to repay.
The fact that borrowers offer the titles of their vehicles as collateral for the loan makes lenders more willing to offer the loan. These types of bad credit loans normally have a specific repayment period of 30 days or less, and the amount is often equal to about 25% to 50% of the current value of the car used as collateral.9
Typically, a borrower can receive a loan for an amount ranging from $100 to $5,500, and it can even go up to $10,000 or higher.9 Despite having a form of collateral, the annual percentage rate (APR) of many car title loans falls somewhere in the triple digits.
What About Online Title Lenders?
You will mostly find car title lenders operating from storefronts or online. Online lenders will typically give you a list of title loan stores operating closest to you. To finalize the online application process, you must physically present your car, a clear title, proof of insurance, and a photo ID or driver’s license. Many lenders will also ask for a duplicate set of your car keys.
To be on the safe side, wherever you go for a title loan, you need to do two things:
- Carefully review the loan terms before getting one to avoid any unpleasant surprises.
- Be wary of “add-ons” such as vehicle roadside service plans, which may inflate the cost of your loan.
When a car title loan is approved, the borrower receives the money in their checking account, and the lender keeps the car title. You can only get your title back once you fully pay off the Outstanding debt.
Remember that these loans come with more cons than pros. If you cannot repay the loan, the lender can repossess your vehicle, affecting your credit score. If possible, it’s very important to set up autopay for these loans so that you don’t miss payments and lose your vehicle.
8. Invoice Financing
Invoice financing can help business owners to free up monthly capital when unpaid invoices slow down their cash flow, even with a low credit score. If it suits your unique funding requirements, invoice financing can be another alternative for business owners who have a poor credit score, depending on eligibility. Basically, it’s a self-collateralizing loan: the unpaid invoice acts as security for the financing, even with bad credit.
This category of loans is most suitable for business-to-business (b2b) startups. You’ll receive an advance of around 85% of the invoice amount from a lender.10 The lender will then follow up on your invoice, and once your client pays up, you will receive the balance after the lender has deducted the loan amount and fees.
Lenders who offer invoice financing can help you turn your invoices into instant cash and are often ready to work with borrowers with low credit scores.
This type of financing helps to sustain the cash flow of your business. It can help you pay your own bills even if your clients delay or pay erratically.
9. Equipment Financing
Businesses are spending more and more money on equipment, especially computers and communications tools, which has driven the need for equipment financing.
Equipment financing is particularly interesting since the loan provides its own collateral. The equipment you purchase or lease using this loan serves as security. This type of loan typically has favorable interest rates, depending on your credit score.
However, this type of loan is specifically designed for business equipment. You cannot divert it to other expenses. Borrowers normally use it to purchase equipment like lawnmowers, trucks, tractors, or walk-in-coolers.
Typical Equipment Financing Rates and Terms for Loans:
- Loan amounts of up to 100% of the value of your equipment
- Fixed interest rates ranging from 6% to 24%, or higher
- Quick funding within typically three business days, although sometimes it’s a bit longer
- Repayment periods lasting from several months to ten years or longer11
Lenders may also have a minimum credit score or specific business operating history requirements.
10. Purchase Order Financing
Like invoice financing, lenders in purchase order financing will take over your purchase order, while offering the necessary funds to allow you to supply products to your customers.
Purchase order financing is different from invoice financing since you get funding before delivering goods to customers. Essentially, you get money to pay your supplier who provides the goods that your customers ordered.
After customers pay, lenders give you the balance after subtracting the loan amount and fees. This financing helps you to avoid the enormous capital needed to execute big orders from clients.
Purchase Orders Typically Have the Following Minimum Loan Requirements:
- Your supplier and customer are creditworthy and have decent credit
- The purchase order has a 15 percent or higher profit margin12
- You have a business or government customers (B2C businesses are not eligible)
- You sell tangible goods
11. Hard Money Loans
Hard money loans have some similarities to equipment financing. Just as equipment financing funds equipment purchases, hard money loans finance real estate as well as fixed assets.
The asset you purchase will serve as collateral for the hard money loan, which makes these types of loans accessible for startups, small-scale businesses, and individuals with bad credit.
Key Features of Hard Money Loans:
- A short-term financing option
- A much higher interest rate compared to ordinary bank mortgages
- Lenders include costly processing fees
- Prepayment penalties for early loan payment
- A large down payment
- Helps people who have equity but cannot get traditional loans
- Quick funding, usually within two days
- Lenders typically do not require financial disclosure or credit checks
12. Online Line of Credit
Compared to banks, online lenders usually have softer qualification requirements and faster funding for lines of credit, sometimes as soon as the next day. However, the interest rates for online lines of credit are normally higher than for banks. When you get a line of credit, you can access cash on demand, which allows you to borrow up to a set amount, while only paying interest on the amount you borrow.
If you’re running a business, the line of credit gives you capital that you can regularly utilize. It can even be in the form of a revolving credit line, which reverts to the initial amount once you pay the pending balance.
- Short-Term Bad Credit Loans
This type of loan offers a speedy and accessible financing option because you can get approval in just one day, even if you have poor credit. Once you get the loan for bad credit, you can make daily or weekly payments for up to one year.
However, short-term loans typically come with high interest rates. Therefore, if you want to take these types of bad credit loans, keep that in mind when making payments for this type of bad credit loan.
14. Loans from Family Members or Friends
Getting a loan from close friends and family members can be challenging. Although such a loan may not require a credit check, it can potentially ruin an important relationship if things go wrong.
Therefore, you should probably only consider this option as a last resort. Only do it if you are sure that you will be able to honor your promise of repayment. Although this kind of loan largely depends on good faith from both the lender and borrower, make everything official by drafting a loan agreement.
Clearly spell out the loan terms, including interest rate, duration of the repayment, and installment loan amounts. This helps prevent broken relationships, hurt feelings, and possible legal tussles from avoidable disagreements.
Benefits of Getting a Loan From a Close Family Member or Friend Include:
- Approval and loan terms may not necessarily depend on your credit score
- Receiving the money instantly
- The payment plan is negotiable and flexible
- The interest rate might be low or even non-existent
- No credit check
Disadvantages of Getting a Loan From a Family Member or Friend Include:
- Putting an important relationship at risk
- You cannot easily borrow large amounts
- Changes in your relationship can adversely affect your loan terms
- You may face legal action for minor disagreements
15. Payday Loan with Low Credit
The extensive use of this type of loan by people with bad credit scores has a lot to do with how easy they are to get. All you need is a legal ID, bank account, no credit check, and sufficient proof of income. Once you get the loan, the Principal, service fees, and interest are normally due on your next payday. They’re meant for short-term financial needs. The typical payday loan amount is roughly $500 and normally comes with higher fees than many other loans.13 The interest alone can cause some payday loans to be a bit costlier than other types of bad credit loans.
As much as this option may provide quick funding, the Consumer Financial Protection Bureau revealed that the fees charged for a normal two-week payday loan result in an annual percentage rate (APR) of about 400%. This is higher than the APR on credit cards, which ranges from 12% to 30%.13
If you take a $500 payday loan because of your credit score, at an APR of 391%, you will pay $575 two weeks later. However, some borrowers have a tendency of “rolling over” their payday loans several times. If you do that for about three months, on your $500 loan, the amount you will owe will be over $1,000.
Certain states do not offer payday loans online, while other states have placed tighter regulations to ensure consumers are protected.
16. Merchant Cash Advance (MCA)
If you have a business and are unable to qualify for other loans, a Merchant cash advance (MCA) is one of the most flexible loans. The flexibility of MCAs is based on the fact that you pay more when business is doing well, and less when business is slow. This is because lenders take part in your credit and debit card sales (between 8% and 30% of your sales) after advancing you some cash.
You can get a cash advance of up to 250% of your company’s normal debit and credit card sales.14 Some lenders might offer a fixed dollar amount ranging from $2,500 to $250,000, or as high as several million.15
You don’t need a spotless credit to qualify for a merchant cash advance, but lenders often require that your business meet certain requirements:
Merchant Cash Advance Criteria for Borrowers:
- An operating history involving credit and debit card payments
- Credit and Debit card sales
- Specific minimum monthly card sale volumes
- Particular minimum annual revenue
Despite being a form of debt, an MCA isn’t technically a loan since the merchant cash advance company is purchasing your future debit and credit card sales. Therefore, an MCA doesn’t follow the same regulatory standards as typically business loans. The absence of regulation makes the merchant cash advance one of the most expensive loans.
Fortunately, legitimate MCAs are regulated by the Uniform Commercial Code established by each US state, rather than such federal banking laws as the Truth in Lending Act.
Bad Credit Loans
Because there’s such a wide variety, someone who has bad credit can probably still find some good personal loan options. Knowing how to get the best personal loan with speed and convenience isn’t always easy. And depending on your credit, some options offer better rates and terms than others. Your best bad credit option will also depend on how well it matches your specific needs. For instance, poor credit loan options designed for American businesses can serve business owners better. But for loans for bad credit, you’ll have more luck at places like a credit union, or finding unsecured loans through personal installment lenders.
While having low credit can definitely make life more difficult, there are ways to manage it. Your best bet when you need a loan for bad credit would be unsecured loans like personal installment loans, or a secured loan from a trustworthy lender. These options tend to have a lower minimum credit score requirement. But be careful with secured loans. As many secured loans require you to risk losing a valuable item in order to get the loan funds you need. Secured loans might be easier to get, but you’ll need to weigh the pros and cons of using collateral to secure loan funds.
Knowing how to get an unsecured loan or even secured loan with bad credit may not be easy. But there are many lenders offering personal loans with low or no minimum credit score requirement if you know where to look. But finding one with a low origination fee and APR (annual percentage rate) is more difficult. It may be wise to consult with specific types of financial advisors before making your choice. This can help you compare fees and options before signing for a loan you’re not sure about. And always make sure that they disclose the APR, rather than only the interest rate. Any lender or advertiser that won’t disclose the APR to a customer is probably not trustworthy.
Most importantly, prompt and complete repayment of the bad credit loan can help improve your credit score, so you can qualify for better loan rates in the future. A better FICO score means better financial security. Finding the right loan company, a low APR, and a low origination fee is a key to finding the right unsecured loan for your budget. These aren’t easy decisions, but there are still options out there for borrowers with bad credit. And there are plenty of legitimate lenders that have a lower minimum credit score requirement.
Always keep in mind whether or not you can repay the loan and fees, no matter what loan you choose. Take into consideration your annual income, the APR, your debt consolidation options, and all of the fees. There’s a lot to consider, but the APR and total fees are the most important factors to consider. Make sure to check their website, read their FAQs, check the privacy policies, and read customer reviews as well. Pay attention to these things, and you’re likely to find the best personal loan for your situation. Organizing your budget and finances is like financial self-care. It may seem difficult, but it will help you in the long run.
Navigating the world of personal finance is not easy. Whether you need a secured loan, unsecured loan, student loan, or auto loan, there’s a lot to learn. To learn more about bad credit personal loans, building a budget, your FICO Score, APRs, money management, and personal finance, check out the rest of our blogs in the CreditNinja Dojo or our helpful FAQs.