Can I Get a Personal Loan With Bad Credit?
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If you need a personal loan, there are plenty of great lenders that offer options to meet your financial needs. But what if you have bad credit? Can you still qualify for a personal loan?
The good news is that there are several quality lenders with loans for people who don’t have great credit. You could end up with a higher interest rate than you would like, but if you have a financial need that requires the help of a personal loan, there is hope.
Here’s a look at what you need to know about getting a personal loan with bad credit.
What Is the Minimum Credit Score for Personal Loans?
A bad credit score doesn’t necessarily disqualify you from getting a personal loan, but it does make it more difficult. What exactly is a bad credit score? A bad FICO credit score is anything under 580. A bad Vantage credit score is a score of 600 or lower.
Most lenders don’t publish credit score requirements, but most likely, you’ll need to be on the high end of the spectrum of bad credit to meet minimum requirements. Other lenders prefer customers with at least fair credit, which is a FICO score between 580 and 669.
Related: 5 Best Ways to Use a Personal Loan
3 Places to Get a Personal Loan With Bad Credit
If you have bad credit and need a personal loan, some lenders specialize in bad-credit loans. Here are a few of our favorite lenders for these types of loans.
Prosper 
Prosper is one of the top choices for those with bad credit to get personal loans. They offer fixed-rate loans from $2,000 to $40,000 to use for various purposes. Prosper loans include an origination fee of up to 5%, along with other fees.
Payoff 
Payoff offers personal loans designed to help borrowers boost their credit score and pay off high-interest credit card debt. You can borrow up to $35,000 with loan terms between two and five years. Payoff does charge origination fees up to 5%, but they don’t charge any other fees.
Avant
Avant loans are available up to $35,000 to use for a variety of financial needs. Fixed loans come with terms between 24 and 60 months. The company does not list an origination fee, but it does charge up to 4.75% for an administration fee on all loans, along with other various fees.
How Does Your Credit Affect the Interest Rate?
I mentioned credit score requirements earlier, and there’s a reason for that. Your credit is the leading factor that lenders use to determine your eligibility for a loan. Your credit also affects the interest rate you receive.
Each lender has different requirements, but most consider the following factors when determining eligibility and an individual’s interest rates:
- Credit score
- Debt-to-income ratio
- Credit history
- Income
- Employment history
Unfortunately, people with bad credit get the highest interest rates. That’s because you’re considered a bigger lending risk. Lenders look at your creditworthiness to determine how likely it is that you’ll make your payments on time. Having bad credit significantly limits the opportunities you have to borrow money. Plus, a higher interest rate means you’ll end up paying more money over the life of your loan.
Related: Best Personal Loan Rates This Month
Steps for Getting a Personal Loan With Bad Credit
Check Your Credit: Before applying for a personal loan, get an idea of where you stand with your credit. You can get a copy of your credit report from the three major credit bureaus at AnnualCreditReport.com. Many banks, credit unions, and credit card companies now offer credit scores for free, so be sure to check your existing financial accounts.
Compare Lenders: There is specific criteria to consider as you look for a personal loan, such as interest rates, origination and other fees, prepayment penalties, and loan terms.
Most lenders have an option to do a soft credit pull to either check rates or prequalify you for a loan, which won’t negatively affect your credit score. Compare these to find the best lending option for your situation. We love Credible for personal loans because you can compare rates with multiple companies in one place. When you decide on a lender, apply for a loan. The lender will perform a hard credit inquiry at that time, which could temporarily drop your credit score a few points.
Have a Cosigner: If you’re having trouble securing a personal loan on your own, many lenders offer an option to apply with a cosigner. A cosigner is another person, usually someone close to you such as a parent or other family member, who assumes responsibility for your loan if you cannot pay.
Having a cosigner with stellar credit might be what you need to get a personal loan with a manageable interest rate.
Avoid Scams: While several reputable lenders offer personal loans to people with bad credit, some companies are bent on scamming people out of money with false claims. These companies often seek an advance fee, offering a guarantee that you’ll be approved before you even apply. Telltale signs of a scam include:
- A lack of interest in your credit history
- No disclosure of fees
- A request that you wire money to apply
When it comes to lending, if it sounds too good to be true, it probably is. It’s best to avoid sketchy companies and find a legitimate lender for your personal loan needs.
Personal Loans Starting at 4.60% APR* with autopay – Compare personal loan rates from multiple lenders with Credible! Get started here.
Why You Should Avoid Payday Loans
Maybe you’ve seen a storefront business offering payday loans. Sometimes called cash-advance loans, these are short-term, high-interest loans, usually for less than $500. They are attractive, especially to people with bad credit, because there is no credit check and you typically get approved for a loan in minutes.
The way payday loans work is that borrowers typically write a post-dated check for the loan amount plus added fees, often the equivalent of up to 400% APR. You’d also authorize the lender to withdraw the funds from your bank account electronically. If you don’t repay the loan by the due date, the lender can cash the check or withdraw the money from your account electronically.
While payday loans might meet an immediate financial need, they create a cycle of dangerous borrowing, along with paying extremely high fees. Because people are looking for a quick solution to a financial problem, once the loan is paid off, they are still strapped financially, most likely leading to another payday loan.
Payday loans are so bad that many states have laws prohibiting them. Other states set caps on interest rates and fees for loans that deter payday lenders from doing business there.
The Bottom Line
Having bad credit doesn’t slam the door on personal loans, but you might end up with higher interest rates than desired. Take time to explore the best bad credit loan options available to see if there’s one right for you. If you can set a budget and pay your personal loan on time each month, it will help your credit score long-term and can be an excellent way to break the cycle of high interest credit card debt.
If you have a hard time getting approved for a loan or the high interest rate doesn’t help your situation much, work to improve your credit so you’ll qualify for better lending options in the future.
*Read rates and terms at Credible.com
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