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Best Bad Credit Loans of February 2024
A bad credit loan is for borrowers with bad credit or thin credit. Loans may be secured or unsecured but are typically not secured by collateral such as your car or home.
Bad credit scores fall between 300 and 579 on the FICO scale. The weaker your credit score, the greater the risk to the lender, which is why bad credit loans can be costly. You may qualify for a loan, but you could end up with an interest rate on the higher end of what the lender offers or a smaller loan amount than you want.
Riskier types of loans, such as payday and title loans, are also available to borrowers with low or no credit scores.
The average personal loan rate is 11.94% as of Feb. 7, according to a Bankrate survey. Personal loan interest rates are trending higher in 2024 so far, up nearly a full percentage point from July 2023:
Personal loan rates vary widely based on creditworthiness. Borrowers with very good or excellent credit scores will see much lower interest rates than those with fair or poor credit. Often, borrowers with bad credit will apply for a secured personal loan that uses an asset as collateral in order to achieve lower rates:
Bankrate Averages
Even with bad credit, you can choose from many types of loans, such as:
Personal loans for bad credit
Personal loans have fixed rates as high as about 36%, and they are generally a safer option than payday loans, auto title loans or alternative installment loans. You can typically repay loans in set amounts over a few years.
This type of loan typically is unsecured, which means you don’t have to put down a valuable asset, such as a car or savings account, as collateral. If you have bad credit, you may want to consider taking out a secured personal loan. Although secured loans put your assets on the line, you are more likely to get approved and could receive a better APR. Some lenders also allow co-signers on personal loans, which can help riskier borrowers get approved.
Payday loans
A payday loan is a small, short-term loan intended to cover expenses until your next payday, when you can pay it back. Payday loans have a reputation as predatory, as lenders target consumers with poor credit scores and few options who need quick access to cash. Fees can be very high, often equivalent to triple-digit APRs. If you can’t repay the loan in full by the end of the term, you may be able to extend your loan by paying more fees.
Alternative installment loans
These loans may resemble payday loans because they are accessible to consumers with bad credit and tend to charge high interest rates, often well above 100%. Generally, alternative installment loans feature fixed monthly payments with repayment terms from several months to a few years and steep interest rates.
Student loans
You’ll generally get the most value out of federal student loans, but even private loans can provide better terms for students than other loan options for consumers with below-average credit. Student loans tend to offer a wide range of repayment terms, from five to 20 years for private loans. You can qualify for a federal student loan without a credit check, and you may be able to add a co-signer to help you qualify for a private student loan.
Credit card cash advances
Like payday loans, credit card cash advances can get you quick access to cash but at a high price. You’ll often be on the hook for a cash advance fee of at least $10, and the loan will come with an interest rate higher than what you’re charged for purchases. A credit card cash advance can be helpful if you pay it off quickly, but advances can also harm your credit score by bringing up your card’s balance.
The amount you’re eligible to borrow will depend on several factors, including your credit score, debt-to-income ratio and what the lender offers. Personal loans for bad credit borrowers can range from $1,000 to $50,000, depending on the lender and your creditworthiness.
Here are the steps to get a loan with bad credit:
- Check your credit report and fix any errors. You can get a free credit report from each of the three major credit bureaus at AnnualCreditReport.com. Use your report to identify ways to improve your credit, such as by paying off a debt in collection or paying down a high credit card balance. Also, check for errors that could be lowering your score.
- Figure out how much you need to borrow. Make sure the monthly payments will fit into your budget. Your loan amount, repayment period, APR and any fees the lender charges will help determine your monthly payment. The longer you have to repay the loan, the more you will pay in interest but the lower your monthly payment will be.
- Prequalify to check rates and loan amounts. Prequalification or preapproval use soft inquiries that don’t affect your credit score to allow you to compare interest rates and terms before you apply. A formal loan application may trigger a hard credit inquiry, which can hurt your credit.
- Compare bad credit lenders. Once you have a few offers, choose the most competitive one for your credit situation. Review rates, fees and terms.
- Apply for the loan. This will trigger a hard inquiry, which can temporarily lower your credit score. If your application is denied, you will be notified about factors that contributed to the decision.
When choosing a lender for a bad credit loan, consider these key criteria:
- Eligibility requirements. The credit score you need to get a loan will depend on the lender and the type of loan you want, with higher scores increasing your options. Lenders may also consider parts of your background besides credit, including income and debt-to-income ratio.
- Interest rates. Compare interest rates, fees and penalties – get quotes from a few lenders – when considering which loan is best. The higher your credit score, the lower your interest rate will most likely be. Personal loans typically come with fixed interest rates, which means your rate remains the same for the duration of your loan.
- Loan amounts. Review minimum and maximum loan amounts. Make sure the lender you choose offers the loan amount you need before you apply.
- Loan terms. Before accepting a loan, review its terms, including APR, repayment period, monthly payment amount and loan restrictions. You should be comfortable with the terms and confident that you can make on-time payments.
- Fees and penalties. Origination, late, returned payment and other fees may apply, depending on your lender and, in some cases, your state. Some lenders don’t charge origination fees to make a loan, while others may charge a percentage of the loan amount. If your lender charges for late payments, you may have a grace period of up to 15 days before it applies.
- Repayment options. Lenders usually offer multiple payment options, including online, check and automatic payments. Automatic payments might come with a discount. Some lenders also provide flexibility with your payment date in case you need to change it.
- Customer service ratings and reviews. Take some time to read lender reviews before you sign on the dotted line. Check the Better Business Bureau, Trustpilot and the Consumer Financial Protection Bureau’s Consumer Complaint Database to learn what consumers say about lenders.
Identifying a bad credit loan scam can be difficult, but being aware of the most common signs can help you protect yourself. Look out for lenders that:
- Ignore your credit record.
- Require upfront fees.
- Pressure you to borrow.
- Are not licensed to make loans in your state. Contact your state attorney general’s office to confirm that your lender is.
- Do not have a physical address.
- Contact you first.
Before you commit to a bad credit personal loan, consider your options.
- Seek local assistance. Organizations such as United Way and its partners may be able to offer help locally or find somewhere that can. Visit 211.org or dial 211 to access connections for basic needs like housing, food, transportation and health care.
- Explore buy now, pay later. If your purchase can be made through BNPL, then this type of installment loan might be worth considering. Most BNPL loans require four or fewer installments and often don’t charge interest. Just be sure you can afford the payments and make each one on time.
- Consider a payday alternative loan. Some federal credit unions offer a special product known as a payday alternative loan, or PAL. These short-term loans are designed to prevent borrowers from opting for high-interest payday loans and come with an interest cap of 28%, which is still fairly high.
- Use a credit card. Even if you can’t pay the balance right away, your interest rate is most likely better than a bad credit loan. Just be sure to have a realistic repayment plan in place to avoid falling into a cycle of revolving credit card debt.
- Secure a collateral loan. A secured loan, such as a home equity loan, gives you access to cash that might be otherwise unavailable with a low credit score. The biggest risk of a collateral loan is you could lose the asset if you fail to repay the loan.
- Tap into your 401(k). Although traditional advice would strongly dissuade you from taking money out of your retirement account, a 401(k) loan is a valid option if you’re truly stuck. As long as you pay back the loan within about a year, the impact on your long-term gains should be minimal.
- Borrow from a family member. Asking for help may be difficult, but it may be a better option than a pricey bad credit personal loan. Carefully weigh the pros and cons of borrowing from a friend or family member.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. Personal loan companies are evaluated based on customer service ratings, interest rates, maximum loan term, minimum and maximum loan amounts, minimum FICO score, online features, and origination fees.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
A FICO score below 670 is generally considered subprime. Scores below 670 fall in the fair to poor credit ranges.
Yes, many lenders will issue personal loans to borrowers with bad credit, though you may have to accept a higher rate or less favorable terms than you would with a higher score.
You’ll want to try for a personal loan from a lender that specializes in helping borrowers with bad credit.
A secured loan will require you to provide collateral, such as a vehicle or real estate, which can be seized if you default on the loan. An unsecured loan does not require collateral, but will often require a higher credit score.
- Get the money you need quickly. If you are in dire straits, a bad credit loan can provide you with the funds you need fast.
- Potentially raise your credit score. If your lender will report your on-time monthly payments to at least one credit bureau, you could improve your credit score.
- You’ll pay more than good-credit borrowers. Lenders charge more in interest when your credit score is low, which will make the overall cost of your loan more expensive than if you had good credit.
- You won’t have a lot of time to pay back your loan. You can expect a shorter repayment term when you have a lower credit score.
- You’ll qualify for less. Borrowers with lower credit scores will not be eligible for loan amounts as large as those with better credit scores.
To recap, here are the picks:
Best Bad Credit Loans of February 2024
