A bad credit personal loan is for borrowers with low credit scores or thin credit histories. Bad credit loan amounts range from about $1,000 to $50,000 and annual percentage rates are capped at 36%.
What are bad credit Score loans?
Like all personal loans, bad credit loans have fixed rates and are repaid in fixed monthly installments over a period of one to seven years. These loans typically aren’t backed by collateral they’re unsecured. Though you may qualify for a personal loan with bad credit, your rate will likely be on the high end of a lender’s range, and your approved loan amount may be smaller than what you request.
Pros and cons of personal loans for bad credit
Pros
- Fast funding. Some lenders can approve a loan application instantly, while others may take a day or two. Once approved, funding can happen the same day or take a couple of days.
- Fixed, predictable payments. Unlike most credit cards and credit lines, personal loans usually have fixed interest rates, meaning you’ll have the same monthly payment for the full loan term.
- On-time loan payments build credit. Payment history is the biggest factor that determines your credit score, so paying on time can give you a big boost.
- Rates may be lower than credit cards and other high-interest loans. Though a low credit score often results in high personal loan rates, your rate may still be lower on a personal loan than some credit cards and other high interest rates.
Cons
- Rates are often high. Bad-credit borrowers can expect an annual percentage rate on the high end of a lender’s range. Personal loan rates max out at 36%, and it‘s possible someone with a low score could get a 20% APR or higher.
- Consumers with the lowest credit scores may not qualify. Minimum credit scores among bad-credit lenders are often between 550 and 600. A score that meets the minimum requirement doesn’t guarantee approval, and those with scores below the requirement are unlikely to qualify.
- Collateral or a co-signer may be required. If you fail to qualify for a personal loan, the lender may suggest you add a co-signer or get a secured loan. These options may help you qualify, but late payments will put your collateral or co-signer’s credit at risk.
- Predatory lenders may seek out bad-credit borrowers. those that use deceptive practices to provide potentially harmful loans — may seek out consumers with low credit scores who fear they won’t qualify elsewhere. (More on how to spot a personal loan scam below.)
How to compare bad credit loans
Qualification requirements and cost are the most important features to consider when choosing a personal loan. Here are some tips to compare personal loans for bad credit.
1. Check the borrowing requirements
Bad-credit lenders consider many factors on a loan application, including:
- Credit score: If a lender has a minimum credit score requirement, you’ll need at least that score, but ideally a higher one, to qualify.
- Debit to income ration This is the percentage of your monthly income that goes to debt payments. Lenders typically like to see that you can cover your monthly bills, including any other loan or credit card payments, and have money left over after your new personal loan payment.
- Co-applicant and collateral: If the lender offers a co-signed or secured loan, the person or item you add to the application becomes a factor in deciding whether you qualify.
2. Review the annual percentage rate
A loan’s APR consists of the interest rate plus any fees a lender charges. Many bad-credit online lenders charge an Orgination fees and it is included in the APR. The highest APR an affordable bad credit loan should have is 36%, according to most consumer advocates.
3. Calculate the monthly payments
Review your budget to determine what an affordable monthly payment would be.
4. Compare other loan features
If you have two or more competitive bad credit loan offers, compare other loan features like funding time, whether the lender provides credit-building assistance and if you’re allowed to change the payment date.
Where to get a personal loan for bad credit
Online: Some online lenders offer personal loans specifically for bad-credit borrowers. These lenders may consider information beyond your credit and income to qualify you, though those are still major factors in a loan decision.
Credit unions: Credit unions rely more on traditional information like credit and income but may also consider your history as a member. A member in good standing with the credit union may qualify for a personal loan despite a low credit score.
Bad credit loan rates and fees
The average pre-qualified personal loan rate for a bad-credit borrower was 21.14% in January 2024, according to aggregate, anonymized data from NerdWallet’s lending marketplace.
Here are the average personal loan rates for each credit score range.
| Borrower credit rating | Score range | Estimated APR |
| Excellent | 720-850. | 12.42% |
| Good | 690-719. | 14.82%. |
| Fair | 630-689. | 18.08%. |
| Bad | 300-629. | 21.10%. |
Source: Average rates are based on aggregate, anonymized offer data from users who pre-qualified in NerdWallet’s lender marketplace from Feb. 1, 2024, through Feb. 29, 2024. Rates are estimates only and not specific to any lender. The lowest credit scores — usually below 500 — are unlikely to qualify. Information in this table applies only to lenders with maximum APRs below 36%.
One of the most common bad credit loan fees is an origination fee, which is 1% to 10% of the loan amount. The fee is included in your APR, but a lender may take it before sending you the funds, effectively reducing your loan amount, or add it to your monthly payment.
A two-year, $10,000 loan with a 20% interest rate and a 5% origination fee has an APR of 25.14%. If the lender takes the origination fee before sending you the loan, you’d receive $9,500 and the lender would keep $500.
Lenders also usually charge late payment and non-sufficient funds fees.
How to spot a bad credit loan scam
The lenders on this page offer legitimate personal loans. Here are a few red flags to look out for when you’re shopping for a personal loan for bad credit.
- No credit check or guaranteed approval. Reputable lenders dig into your finances, including your credit and income, to determine whether you can repay the loan. A lender that doesn’t do this may charge exorbitant rates that could land you in a debt trap.
- No state license. The Federal Trade Commission requires lenders to register in states where they do business. Many lenders list state licenses on their websites.
- Asking for a gift card. No legitimate lender asks for a gift card in exchange for a loan. If you’re asked to provide a gift card — even by someone who says they work for a popular lender — consider it a scam.
- No fee disclosures. The Truth in Lending Act requires lenders to disclose the loan’s APR, total interest and total repayment amount before you sign a loan agreement. Ask to see this information before signing and walk away if the lender refuses.
How we chose the best bad credit loans
We compared more than a dozen lenders that require a minimum credit score of 620 or lower to choose the best personal loans for bad credit. Only lenders with APRs below 36% were considered for this list. Here are the other factors we considered.
Eligibility criteria and availability. We considered how widely available the personal loans are, their minimum credit score requirement as well as their average borrower’s credit score. Income, debt-to-income ratio and credit history requirements are also considered.
Affordability. Many lenders offer personal loans for bad credit, but the best bad-credit lenders are able to charge low APRs and other fees, provide rate discounts or an alternative type of loan (co-signed, joint or secured) to help borrowers qualify or lower the APR.
Flexibility. The ability to change a payment due date, get on a hardship program, how quickly the loan is funded, customer service availability during the borrowing and repayment process and wide loan amount and repayment term ranges are all considered when we compile this list.
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FAQ Questions and Answers on Bad Credit Personal Loans
Bad credit personal loans are for borrowers with low credit scores or thin credit histories. Loan amounts typically range from $1,000 to $50,000, with annual percentage rates capped at 36%.
These loans have fixed rates and are repaid in fixed monthly installments over one to seven years. They are usually unsecured, meaning they aren’t backed by collateral.
Consider borrowing requirements, APR, monthly payments, and other loan features like funding time and flexibility.
APRs vary based on credit score, typically ranging from 21.14% to 36%. Fees may include origination fees (1% to 10% of the loan amount) and late payment fees.
Watch out for lenders that offer guaranteed approval, don’t disclose fees, or ask for unusual forms of payment like gift cards. Make sure the lender is licensed and complies with regulations.
