Having a bad credit score can make it difficult to get a loan. “Banks, credit unions, and financial institutions use credit scores and other factors of your credit history to determine the borrower’s ability to repay the loan,” says David Haas, co-founder of PowerPay, a financial technology company that provides loans for home improvement projects. “A bad credit score is somewhat of an indicator of your short, medium, and long-term ability to repay the loan, which is how banks make money.”
Bad credit scores are typically the result of too many credit cards, account balances that are too high, late or missed payments, bankruptcies or simply not having any credit history. But there’s a difference between limited options and no options, and there are companies that are willing to lend to people with subprime credit, but usually at a higher cost, so as to cover the potential risk.
The Most Important Factors For Loans For People With Bad Credit
When looking for a loan, there are several factors to consider, and the most important is the amount of interest you will be charged for your loan.
A person with FICO score over 660 is “considered a prime borrower and will receive reasonable market rate loan products,” says Haas. But the lower your score, the higher you can expect your interest rate to go. According to Haas, 12% – 14% is fairly normal under average circumstances, but interest rates could potentially go as high as 19.99% if the FICO score is low enough.
Other factors to consider include:
Fees – In order to cover the cost of processing a loan, some lenders will charge what is called an Origination Fee, usually as a percentage of the amount owed. An average fee might run between 1% to 5%, but it could go up to 8% in some circumstances. Also be on the lookout for annual fees or hidden fees.
APR – It’s important to consider both the interest rate as well as the Annual Percentage Rate (APR), which includes the interest rate as well as any associated fees, and in the case of a mortgage loan, factors such as closing costs or insurance.
Recourse – In some circumstances, a loan might be secured against your house. Check to make certain this is the case, as you could potentially be putting your home at risk to get possessed by your creditors should you default on your loan.
Term – How long will your loan last, and how much will your monthly payment be? Make certain you pick a schedule you can stick to, so you don’t further damage your credit score with late payment.
Best Loans for Bad Credit Reviews
OneMain Financial – Best for Secured Loans
OneMain Financial offers secured loans, which many competitors don’t, possibly offering a better chance of approval and a better deal. Accepted collateral includes cars, trucks, motorcycles, boats, and RVs.
Another option is a joint application with someone who has better credit, in order to get a higher shot at a lower rate.
Loans can vary in size from as small as $1,500 to a maximum of $20,000, though the lower limit is subject to state laws.
Applying and getting funding with OneMain Financial tends to take between 2-3 days, but this will require a hard credit check. While you can begin your application online, you will need to visit an in-store location after you’re approved to verify your information and go over your loan options.
OneMain Financial offers higher than average interest rates and APR rates, between 18% to 35% on average. The lender also charges an origination fee, either as a flat fee of $25 to $400, or between 1% to 10% of the loan, which is high for the loan industry in general but not uncommon for people with subprime credit.
LendingTree – Best Marketplace
LendingTree is an online marketplace that connects borrowers with different lenders across the country. That means that potential borrowers only need to fill out one simple application to receive multiple offers, from lenders with a wide range of requirements.
Customers should be aware that since LendingTree isn’t itself a lender, they’ll still have to do their research on each offer they get, taking care to look at and compare APRs, fees, and terms. They should also take into consideration that though LendingTree won’t do a hard pull on their credit, the lender they’re matched with might, when determining eligibility.
Further, LendingTree offers a large library of educational resources on their website, from credit repair help to a credit/debt calculator and a proprietary app with personal finance tips and tools.
Prosper – Best peer-to-peer lending
Prosper is an online peer-to-peer service that connects borrowers and lenders. It offers competitive APR rates, but also charges late fees and an origination fee of 5%.
Prosper offers loans ranging from $2,000 to $40,000 and three to five-year terms, and deducts monthly payments straight from your account. Applicants apply online, and then their credit history is assessed, and sometimes you will need to prove employment.
If you have a low credit score, a co-borrower with a stronger credit score can help you secure a loan or a lower APR. The approval process can take up to five days, which might be too long for people who need money immediately.
Avant – Wide range of repayment options
Avant is an online platform that offers loans to people with credit scores as low as 550. It doesn’t allow for co-signers, but you can offer your car as collateral to secure a loan, if need be.
You can change your payment date unlimited times, but you will be charged $25 if you miss it. You can keep track of your loan through a mobile app, which is rare for the industry. It charges APR rates between 9.95% and 35.99%, as well as an origination fee of 4.75%. Loans range between $1,000 – $50,000, and can be available the next day.
Best Egg – Best for a Fast Process
Best Egg is an online lending company known for its quick application process and providing funds within a day of approval.
Best Egg offers loans of up to $50,000. While it’s possible to open up to two loans through Best Egg, the combined total can not exceed $50,000. It’s key to note that though they do offer loans to people with poor credit, most of their borrowers have FICO scores between 600-700.
Best Egg offers a one-time origination fee between 0.99% and 5.99%, which comes out of the total funds you receive.
The company has repayment terms ranging from 36 to 60 months, but Best Egg doesn’t charge for early payment. Both secured and unsecured loans are available.
Upstart – Best Lending Platform
Upstart uses an AI model to match applicants with lenders that offer loans between $1,000-$50,000. Upstart itself doesn’t charge a down payment, but depending on the lender you match with, you might be charged an origination fee.
Upstart specializes in loans to help you pay off credit card debt, and can send the loan directly to your credit card company to streamline the debt consolidation process.
Your APR will vary according to the amount you take out and the lender you match with, which could be anywhere between 7.98% to 35.99%. Loan terms are available for three or five-year terms. You can also change your payment due date by up to two weeks.
Upstart is more likely to offer loans to borrowers with a 600 FICO score, though options are available for people with lower scores or no credit history, as long as you have stable employment. Secured loans and joint applications are not available, which might hurt the application prospects for people with especially low credit.
Other Lenders We Considered
How We Found the Best Loans for Bad Credit
When searching for the best loans for people with bad credit, we kept the following attributes in mind, first and foremost.
Many lenders are unwilling to work with someone with a FICO score less than 660, so we focused on companies willing to work with people with scores between 600 to 500.
Fees can be hard to avoid when securing a loan, and they’re very common for companies who work with people with low credit scores. We looked for companies that didn’t have higher than average fees, and were upfront about their fees rather than hiding them.
Lenders will try to mitigate their risks by charging higher loan rates to people with lower credit scores. We searched for companies that generally didn’t have rates out of line with industry expectations.
Secured or Co-signing Options
For people with particularly low credit scores, it might be necessary to find a company that will let you offer collateral to get a loan, or find someone who will cosign a loan with you. These factors aren’t necessary for everyone, but they’re good options to have.
Loans for People with Bad Credit FAQ
How Can You Improve Your Credit Score?
The best way to improve your credit score is to focus on paying your debts off on time. If you have multiple outstanding debts that are dragging your score down, consider taking out a bank or a debt consolidation loan to get all your debts into one easy place, possibly with a lower interest rate, which will make it easier and faster to pay off.
Are Secured Loans A Bad Idea?
Not necessarily. Many lenders will be more comfortable issuing a loan if they know the customer has assets on the line such as a house or a car, and will be more inclined to offer a lower rate. Just make certain you choose a payment schedule that you know you can pull off, given your income.
Is The Company With The Lowest Interest Rates Always The Best Option?
A low interest is always the most important factor, but the cost of the loan is not the only thing to consider. Keep fees, term lengths and whether the loan is secured or unsecured in mind.
If You Are Locked Into a Policy For Several Years, and Then You Are Later Able To Build a Better Credit Rating, Is It Possible to Renegotiate the Terms of Your Deal? Or Are You Stuck With What You Initially Chose?
“In most cases, you are locked into your loan. A loan is a financial instrument that is often pooled with other loans and sold to investors,” says Haas. “Loans are generally locked, but most allow for prepayment without penalty. Renegotiating is not that common but you can always refinance, especially if your credit score has improved over time. The higher and better your credit score the better rates and terms you should get from the next lender.”