How to Get a Loan with Bad Credit

Having bad credit can create a lot of stress, especially when you need to get a loan.

If your credit is less than stellar, you can struggle to get approved for a loan. If you are approved, you may have a higher interest rate.

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Despite these potential setbacks, it is possible to get a loan with bad credit, and you may be able to improve your credit score as you are repaying your loan.

Read on for some tips on getting a personal loan with a low credit score.

Personal loans are sometimes called “bad credit loans.” These loans are designed for people with lower credit scores.

You can often get a personal loan from a bank, but if the interest rates are high, you may consider other options like a credit union or an online organization.

Understand Your Credit Score

Before you begin to look for or apply for loans, you need to understand your credit score.

Your score is basically a number that lenders can use to determine your likelihood of repaying a loan. A higher score indicates a better chance of repayment.

The scores range as follows:

  • 760-850 – Excellent
  • 700-759 – Very good
  • 660-699 – Fair
  • 620-659 – Poor
  • Scores under 620 – Extremely poor

Early Steps to Getting a Loan with Bad Credit

First, if you are not in an emergency situation where you need money immediately, the best route is to improve your credit score before getting a loan. Sometimes it can take less than a year to improve your score significantly.

If you have the option of borrowing from a friend or family member, that is a way to get money quickly with impacting your credit score.

If you have no option but to apply for a loan with a bank, it is good to set up an in-person interview. Sometimes meeting face-to-face can help a lender see that you are trustworthy instead of a computer application, which can be impersonal.

Since your credit score is not the best, you will want to bring evidence that you can repay the loan when you go to your meeting.

You can bring documents such as tax returns and pay stubs to show that you are receiving consistent income.

You can also bring bank statements and a list of assets to show that you have money and collateral.

Places That Lend to Borrowers With Bad Credit

It can sometimes be challenging to get a loan through a traditional bank if you have bad credit. Many of these institutions have strict credit requirements, and branch managers are unable to make exceptions.

However, there are some other places you can try for a loan.

Car Title Loans

If you own your vehicle, you can use the value of your car to get a title loan. Since the vehicle is used as collateral for the loan, most people — even with bad credit — can still take out a title loan.

A car title loan is a type of secured loan.

Credit Unions

Local credit unions are usually able to work with people who have bad credit.

Credit unions also have an interest cap of 18%, which is much lower than what you will get at most banks.


Sometimes it can help to have a co-signer. If you have a friend or relative with good credit who is willing to sign for you, the bank will often use their credit score instead of yours.

Their score can get you better interest and terms and even help your credit score if you make timely payments.

A word of caution: only get someone to cosign if you are entirely sure you can repay the loan. You could ruin his or her credit and force him or her into paying the money if you default.

Your Home’s Value

If you own a home with some equity in it (meaning it’s worth more than you owe), you may qualify for a home equity loan.

These loans usually don’t require a high credit score and have a lower interest rate.

The only issue with a home equity loan is that if you fail to pay your loan, you could lose your house.

Peer-to-Peer Lenders

One of the newest ways to get a loan with bad credit is through peer-to-peer (P2P) lending. There are websites where individual lenders and borrowers can go.

You can request a loan, and a lender may choose to finance you. P2P lending has many advantages, including leniency with terms and interest rates and lower required credit scores.

Several fully online banks have much lower credit requirements than brick-and-mortar locations. Interest rates on these loans can vary from very low to very high.

You can check out some options here.

Know the Difference Between Secured and Unsecured Loans

Before you sign the dotted line, make sure you know whether your loan is a secured or unsecured loan.

Secured Loan

With a secured loan, you are usually offering some as collateral, such as a home or automobile.

With these loans, the lender has something to secure the loan against you defaulting.

Unsecured Loan

With an unsecured loan, there is no collateral. You just sign a contract agreeing to pay the money back.

Both types of loans have their pros and cons. With a secured loan, you can get lower interest rates, high lending amounts, and better terms.

However, if you are unable to pay, the bank can take away whatever you used as collateral.

With an insecure loan, the bank cannot take anything from you. However, you can still mess your credit up even further if you are unable to pay.

A Payday Loan Is Not the Same as a Bad Credit Loan

A bad credit loan is usually through a bank, credit union or other institution that sets you up with an interest rate and a payment plan that allows you to pay back the money over time.

A payday loan is an emergency loan that is expected to be paid back wholly by your next paycheck – usually a period of two weeks.

The interest rate for payday loans is incredibly high and can shoot up even more if you fail to make the two-week repayment date. Be very careful with these sorts of loans.

Even if you have bad credit, you can still get a loan. If you choose the right lender and have a strategy for repayment, you can even help your credit score continue to go up.

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