How to Get a Loan with Terrible Credit: Helpful Tips and Options

Having terrible credit can be really discouraging. You may need a loan, but you are concerned that no bank will approve it. Bad credit makes borrowing more challenging, and higher interest rates can make matters even worse.

This guide explains your options step by step. It also shares tips to improve your chances of approval and avoid risky traps. Keep reading for helpful solutions!

Understanding Bad Credit and Its Impact on Loans

Bad credit makes borrowing harder. It can lead to higher costs and fewer choices.

What is Considered “Terrible” Credit?

A credit score below 580 is thought of as “terrible.” Most lenders set their minimum requirement at this number. Some, such as Upstart, may approve scores as low as 300.

If your score falls under 580, it’s often called subprime. This means securing loans can be more difficult. You may face higher APRs or stricter terms on bad-credit loans.

How Credit Scores Affect Loan Eligibility

Lenders use credit scores to decide if you’re a safe borrower. Scores range from 300 to 850, with scores below 580 considered poor credit. Many lenders require at least a score of 670 for standard loans, but you can still find personal loans with lower scores.

A low credit score often means higher interest rates and stricter terms. For example, subprime borrowers might face APRs exceeding 35%. Lenders also consider other factors, such as your income and debt-to-income (DTI) ratio, which should remain below 50%.

Too many hard inquiries during the loan application process can drop your score further, so avoid applying too often.

Preparing to Apply for a Loan

Start by understanding your current credit standing—this will guide your next steps. Set clear goals for the loan, and plan how you’ll repay it without stress.

Check Your Credit Score and Review Your Credit Report

Check your credit reports for errors or fraud. Use AnnualCreditReport.com to get a free report from the three major credit bureaus. Review everything carefully, like account balances and personal details.

Knowing your score helps you compare loans better. Scores between 300 and 580 are often considered poor credit. Avoid multiple hard inquiries; they can temporarily lower your score. Instead, use prequalification for soft pulls on comparison sites.

Identify Your Loan Purpose and Ideal Loan Amount

Decide why you need the loan. Common uses include paying medical bills, home repairs, or debt consolidation. You cannot use personal loans for business purposes, gambling, or buying cryptocurrency.

Be clear about your goal before applying.

Figure out how much money you truly need. Bad credit loans often range from $300 to $50,000, but may be smaller if your score is under 580. Use a loan calculator to estimate repayment amounts and ensure you can afford them within your budget.

Create a Realistic Budget for Repayment

Start by calculating your monthly after-tax income. List all your fixed costs, like rent and utilities. Include debts, such as credit card payments or personal loans. Subtract these amounts from your income to see what’s left.

Use a loan calculator to estimate repayment costs. For example, a $6,000 loan at 24.99% APR over five years would require $176.07 per month. Check if you can afford this without missing other bills or buying essentials like food and gas.

Use tools like autopay to avoid missed payments and save on late fees, too!

Loan Options for People with Bad Credit

Having bad credit doesn’t mean you’re out of options. There are still ways to get the funds you need. Different loan types can meet your needs, but each has its own terms and risks.

1. Secured Loans (Using Collateral)

Secured loans require you to offer something valuable, like a car or savings account, as collateral. This provides lenders with security and may help you secure lower interest rates, even with bad credit.

Loan amounts range from $1,500 to $20,000 from lenders.

If you miss payments, the lender can take your collateral. Some items are prohibited under certain laws, such as the Military Lending Act for active-duty members. Be aware of origination fees as well; they vary by state and can range from $25–$500 or 1%–10%.

Consider this option carefully before applying.

2. Personal Installment Loans

Personal installment loans let you borrow money and repay it in fixed monthly installments. These payments usually last between 3 to 7 years. Avant offers loan amounts from $2,000 to $35,000 with terms of 24 to 60 months.

Their annual percentage rate (APR) ranges from 9.95% to 35.99%.

Upstart provides loans from $1,000 up to $75,000 with terms of either 36 or 60 months. Their APR ranges from 6.5% to 35.99%. Oportun is another option if you need smaller amounts; their loans start at $300 and increase based on state laws, with no credit history required for approval in some cases.

3. Payday Alternative Loans (PALs)

PALs are loans from credit unions. You can borrow up to $2,000 and repay it within 12 months. The interest rate is capped at 28%, which is much lower than payday loans, which often exceed 400% APR.

No minimum credit score is required, but you must be a credit union member.

These loans come with fixed repayment terms, so there are no balloon payments. Federal rules limit fees, making them more affordable for borrowers with bad credit. PALs cannot be used for business or high-risk investments to ensure they stay focused on personal needs.

4. FHA Loans for Homebuyers

FHA loans help people with bad credit buy homes. You can qualify with a credit score as low as 550. These loans let you make smaller down payments compared to other mortgages.

You must use the loan for your primary residence, not for a rental or business property. The government insures these loans, so lenders feel safer lending to you. FHA loans have competitive interest rates but include mortgage insurance costs.

Your income and debt-to-income ratio will also be checked during the loan application process.

5. Title Loans and Why to Be Cautious

Title loans use your car as collateral. They are risky because they often carry APRs over 400%. You don’t need a minimum credit score, but costs can add up quickly. Fees and interest can sometimes exceed the loan amount.

If you fail to pay back, you could lose your vehicle. Many states limit or ban these loans due to high risks. Avoid them if possible and explore safer options, such as personal loans or payday alternative loans.

Where to Find Bad Credit Loans

You don’t have to stick with big banks. There are smaller, more flexible options. Look into lenders that specialize in serving people with low credit scores.

Credit Unions and Community Banks

Credit unions offer Payday Alternative Loans (PALs). These loans range from $2,000 with a 12-month repayment term. The interest rate is capped at 28%, making it safer than payday loans.

To apply, you must be a member in good standing. Applications are handled online or in person.

Some community banks may provide small-dollar loans to local borrowers with bad credit. They value relationships and may work with you to approve your loan. Fees and rates are often lower than those at larger banking institutions.

Both options can help when other lenders reject your application.

Online Lenders Specializing in Bad Credit

Some online lenders focus on helping people with bad credit. Upstart accepts scores as low as 300 and offers loans from $1,000 to $75,000. Their APR ranges from 6.5% to 35.99%, and you can choose repayment terms of 36 or 60 months.

Another option is Avant, which serves borrowers with poor to fair credit. Loan amounts range from $2,000 to $35,000, with APRs from 9.95% to 35.99%. They also provide next-day funding for quick access to cash when needed most.

Peer-to-Peer Lending Platforms

Peer-to-peer lending lets you borrow money directly from investors. Unlike banks, these platforms often offer flexible credit requirements. You might qualify even with bad credit if you have stable income or employment.

Platforms like LendingTree allow you to compare multiple loan offers in one place.

Loan amounts typically range from $1,000 to $50,000. Many platforms allow you to prequalify with a soft credit inquiry, which won’t affect your score. These loans often come with fixed interest rates and set repayment terms, making budgeting easier.

After approval, funds may take 1 to 7 days to reach your account.

How to Increase Your Chances of Approval

Apply With a Co-signer or Co-borrower

A co-signer or co-borrower can help you get a loan, even with bad credit. A co-signer has good credit and agrees to repay the loan if you are unable to. This boosts your chances of approval and may lower your interest rate.

Co-signers are useful if your FICO score is below 580.

Some lenders allow co-applicants. Others do not, such as Avant. The co-signer must also share their financial details during the process. Unlike a co-signer, a co-borrower shares ownership of the loan and repayment duties with you.

Both options can help secure larger loans or better terms from lenders specializing in bad credit loans!

Provide Proof of Stable Employment or Income

Show your pay stubs, bank statements, or tax returns to prove steady income. Most lenders need proof that you can repay the loan. Your debt-to-income ratio (DTI) should remain below 50%, which helps lenders assess your financial control.

Self-employed? You may need additional documentation, such as profit-and-loss statements. If you receive Social Security or disability benefits, some lenders also treat them as income. Consistent payments from a job or benefits boost your chance for approval and could get you higher amounts.

Request a Lower Loan Amount

Ask for a smaller loan. Many lenders offer loans starting at $300 or $500 through platforms such as Oportun or OppLoans. Smaller amounts reduce the lender’s risk, increasing the likelihood of approval.

A lower amount also means fewer costs. Fees like origination charges take a percentage of your loan; borrowing less saves money here, too. Repayments will be easier with smaller monthly payments that fit into most budgets.

Some lenders even suggest starting small and refinancing later when your credit improves.

Show Evidence of On-Time Payments or Savings

Show past payments made on time. This can include rent, utilities, or credit card bills. Lenders like to see proof that you pay regularly and responsibly. Some lenders, such as OppLoans, may review alternative data to assess payment history.

Bank statements showing regular deposits help too. A steady savings balance or emergency fund shows financial stability. You can also try Experian Boost to add utility and phone payments to your credit report for a better score.

Red Flags to Watch Out For

Watch out for loans that sound too good to be true. They often have hidden costs. Always check the interest rate, fees, and terms before signing anything.

Avoid Predatory Lenders and Loan Scams

Stay away from lenders who pressure you to borrow more than needed. Avoid any lender that charges upfront fees for loan approval, as this is a common scam.

Payday loans often trap borrowers with APRs over 400% and short repayment terms. Be cautious of lenders who avoid credit checks; they may be targeting people with bad credit for unfair practices.

Always check if the lender is licensed in your state to operate legally. If something feels off, report it to the CFPB or your state attorney general immediately.

Understand the Loan’s APR and Total Repayment Cost

Look at the loan’s APR carefully. It shows how much interest you’ll pay each year. For bad credit, APRs often go over 30%. Payday Alternative Loans (PALs) keep rates lower, capping them at 28%.

Use a loan calculator to find monthly and total repayment costs. Origination fees also affect what you owe. For example, Avant charges up to a 9.99% origination fee, which is deducted from your funds upfront.

Always include these fees when calculating the total repayment amount.

Read the Fine Print for Hidden Fees and Prepayment Penalties

Check for hidden fees before signing any loan agreement. Some lenders charge fees such as origination costs, late payment penalties, or a $10 fee for paper agreements (Upstart). Origination fees can range from 0% to 12%, depending on the lender.

Admin fees might also reach up to 10%, as seen with Oportun.

Prepayment penalties can add extra costs if you repay early. Fortunately, some lenders, such as Avant and OneMain Financial, do not charge these fees. Always confirm whether there are discounts for setting up autopay, which may lower your APR by 0.25%- 0.5%.

Reading all terms closely helps avoid surprises later.

Alternative Solutions to Consider

You have options such as paycheck advances or local assistance programs.

Borrowing From Family or Friends

Borrowing from family or friends can help in emergencies. These loans typically carry little or no interest, saving you money compared to high-interest options such as payday loans.

It’s faster than applying for a personal loan and won’t affect your credit score.

Create a written agreement for repayment terms. This avoids misunderstandings and keeps things fair. Keep records of all payments made, even if it feels unnecessary now. Failing to repay could damage relationships, so only borrow what you truly need and can afford to repay.

Employer-Based Paycheck Advances

Some employers offer paycheck advances for urgent expenses. These programs don’t require a credit check, making them a good option if your credit score is low.

You repay the advance from your next paycheck or within a short time. Many companies charge low or no fees for this service, unlike payday loans, which carry high interest rates. Check with your HR department to confirm whether this option is available, and review any limits on the amount you can borrow.

Use these advances only in emergencies, as they won’t help build credit history.

Local Charities or Nonprofits Offering Financial Help

Local charities and nonprofits can help with rent, utility bills, or medical costs. Many also provide food, clothing, and other basic necessities. Churches and community centers often also offer emergency aid.

United Way and 211.org list local resources for assistance. Some organizations even give grants that you don’t have to pay back. Funds are limited, though, so apply early and bring all needed documents.

This type of help won’t affect your credit score either.

Credit Counseling and Debt Management Plans

Credit counseling helps you manage money and debts. Agencies assist with creating budgets and establishing repayment plans. Nonprofit groups often provide this service for free or at low fees.

Be sure to check if they are accredited by the National Foundation for Credit Counseling (NFCC).

Debt management plans let you consolidate payments into a single monthly bill. Counselors can also negotiate lower interest rates with creditors. This may temporarily close your credit cards, but completing the plan could improve your credit score over time.

Avoid companies that charge high upfront costs, as they may not be trustworthy.

Building Toward a Better Financial Future

Take small steps to improve your credit history. Pay loans on time and maintain sound financial habits.

Steps to Improve Your Credit Over Time

Pay your bills on time every month. Late payments hurt your credit score the most. Even a single missed payment remains on your report for seven years, so set reminders or use automatic payments.

Keep credit card balances low compared to your limit. Try not to exceed 30% of your available credit. For example, if you have a $1,000 limit, keep the balance under $300. Pay down existing debt as well; it improves both your score and your debt-to-income ratio.

Check reports regularly for errors and fix them immediately using free tools such as AnnualCreditReport.com.

Responsible Loan Repayment Tips

Stick to a budget that fits your loan repayment terms. Late payments can incur additional fees and harm your credit score. Choose lenders who report on-time payments to credit bureaus, which helps improve your FICO credit score.

Check for hidden fees before signing any agreement. Avoid payday or title loans with high interest rates. Paying more than the minimum can lower the total interest over time.

Show proof of steady income to secure better repayment plans if needed.

Using a Loan as a Credit Rebuilding Tool

A personal loan can help rebuild your credit. Making regular, on-time payments demonstrates to lenders that you are responsible. Over time, this boosts your credit score and builds trust with financial institutions.

Lenders such as OneMain Financial may approve loans for borrowers with poor credit. Consistent repayment habits improve scores while creating a positive payment history. Secured loans or low-limit installment loans can also help, provided they are repaid responsibly.

Prequalify first to avoid hard credit inquiries that could further harm your score.

Final Thoughts

Getting a loan with bad credit isn’t impossible. Check your options, plan carefully, and pick what works best for you. Explore secured loans or personal installment loans if needed.

Watch out for high fees or scams from predatory lenders. With smart planning and effort, you can borrow responsibly and improve your financial health over time.

Sources:

• opploans.com/personal-loans/bad-credit-loans
• cnbc.com/select/personal-loans-to-apply-credit-score-580-or-lower
• bankrate.com/loans/personal-loans/how-to-get-a-bad-credit-loan