When you have bad credit, obtaining new credit can be challenging. People with bad credit often find that getting approved for a loan is difficult, as options can be limited. When those with bad credit are approved for a personal loan, they typically face higher interest rates, more fees and greater restrictions than consumers with good credit.

This guide covers the basics of how bad credit loans work, how to apply for and receive a loan, and recommendations for the best bad credit lenders.

What Is the Best Interest Rate on a Personal Loan?

When you shop around for the best personal loan interest rate, you can save. Compare your personal loan offers with national average trends for personal loans to know if you’ve found a good deal.

Loan Type This Week’s Rate Last Week’s Rate
National Average Personal Loan 10.93% 10.90%

Rates as of May 25, 2020

What Are the Best Bad Credit Loan Companies of 2020?

  • Discover: Best lender for no fees except late fees.

  • Earnest: Best lender for borrowers with a debt-to-income ratio as high as 60%.

  • Rocket Loans: Best Lender for Loans As Small As $2,000

  • Upstart: Best Lender for Borrowers With FICO Scores As Low As 620

U.S. News researched lenders for data on eligibility, loan terms, fees, repayment methods and additional features to identify the best companies offering bad credit personal loans. The analysis was limited to companies with online applications; no minimum FICO credit score or a minimum score of 620 or less; and a maximum debt-to-income ratio of at least 35%, with a preference for companies allowing co-signers and online preapprovals.

Each consumer has different needs, and many lenders specialize in areas designed to meet them. U.S. News identified top lenders in the key areas of eligibility, interest rates and features that are most useful to consumers with bad credit.

Best lender for no fees except late fees.

Discover offers personal loans for debt consolidation, home improvement and major purchases. Loan terms from three to seven years are available.

  • Minimum FICO score: 660
  • Maximum debt-to-income ratio: N/A
  • Co-signer option: No
  • Preapproval or rate quotes available: Rate check available
  • Loan amounts: $2,500 to $35,000
  • Loan terms: 36 months to 84 months
  • Loan use restrictions: Only debt consolidation, home repairs/improvements, unexpected expenses or major purchases.
  • Discounts: N/A
  • Origination fee: None

Best Features

  • Discover has no fees other tha
    n a late fee.

  • Customizable loan terms from 36 to 84 months.

  • Borrowers get free access to their FICO credit score.

See full profile

Best lender for borrowers with a debt-to-income ratio as high as 60%.

Founded in 2014, Earnest is another fast-growing lender in Silicon Valley. It uses a custom algorithm that identities good loan prospects by considering more than just their credit score.

Earnest clients can decide how much they want to pay each month and then Earnest gives them an interest rate to match. By letting customers decide what they’re comfortable paying, this could also cut down on defaults and late payments.

Best Features

  • Loans available up to $75,000.

See full profile

Best Lender for Loans As Small As $2,000

RocketLoans offers personal loans to qualified borrowers in all 50 states. These loans are designed for people with fair to excellent credit who need to borrow up to $45,000 for debt consolidation, home improvements, medical expenses and business or other expenses.

  • Minimum FICO score: 640
  • Max DTI: 32%
  • Co-signer option: N/A
  • Preapproval or rate quotes available: Yes
  • Loan amounts: $2,000 to $45,000
  • Loan terms: 36 months to 60 months
  • Loan use restrictions: Eligibility for a loan is not guaranteed. Please refer to our Disclosures and Licenses page for state-required disclosures, licenses, and lending restrictions.
  • Discounts: Discounts to Quicken Loans mortgage holders.
  • Origination fee: Yes

Best Features

  • Same-day loan funding is available for up to $25,000.

  • No prepayment penalties apply.

See full profile

Best Lender for Borrowers With FICO Scores As Low As 620

Upstart uses automation to originate credit, funding more than $3.2 billion to 250,000 borrowers. Loans as small as $1,000 are available with this lender.

  • Minimum FICO score: 620
  • Maximum debt-to-income ratio: Not disclosed
  • Co-signer option: No
  • Preapproval or rate quotes available: Yes
  • Loan amounts: $1,000 to $50,000
  • Loan terms: 3 to 5 years
  • Loan use restrictions: Loan funds may not be used for any prohibited uses noted in Upstart’s Acceptable Use Policy.
  • Discounts: N/A
  • Origination fee: 0% to 8%

Best Features

  • Upstart may accept applicants with fair credit or even those with no credit history, using artificial intelligence to quantify risk.

See full profile

Personal Loan Finder

Select your desired loan amount and loan purpose, your credit score range, and your state to see estimated annual percentage rates and loan terms.

What Is a Bad Credit Personal Loan?

A bad credit personal loan may be available to people with poor or no credit. Borrowers normally get bad credit personal loans to consolidate debt, to pay off unexpected expenses, to make a large purchase, or to fix a home or car. Bad credit usually is a FICO score in the fair or very poor credit range. FICO is the main scoring system for consumer credit, with credit score ranges defined as:

  • Exceptional (800 to 850)
  • Very Good (740 to 799)
  • Good (670 to 739)
  • Fair (580 to 669)
  • Very Poor (300 to 579)

While credit score ranges can go as low as 300, you typically need fair credit or better to qualify for a bad credit loan. Each lender will look at your score to determine what level of risk it is willing to bear.

If you can qualify for a loan despite having bad credit, you may have to make a larger down payment and pay higher interest rates for the loan.

Bad credit loans typically have higher interest rates and shorter terms than loans offered to people with good credit. Standard bad credit loan terms are two to five years, and lenders could charge an APR of up to about 36%.

If you take out a bad credit loan for $10,000 with a typical term of three years and a 25% APR, your monthly payment would be $397.60. The total interest paid on the loan would be $4,313.14.

For comparison, if you have good credit and can qualify for a 4.29% APR on a $10,000 three-year personal loan, you would pay $296.53 monthly and $675.14 in total interest. By having good credit and being eligible for an interest rate of 4.29% versus 25%, you will save $3,638 in interest.

What’s the Difference Between Bad Credit Personal Loans and Payday Loans?

Payday loans are another type of loan marketed for people with bad credit. The loan amounts are usually small and the terms are short, but interest rates and additional fees can be exceptionally high. If you can’t repay the loan in full by the end of the term, which is typically your next payday, the loan is usually extended and additional financing charges are added.

Lenders usually charge a substantial amount in interest, often around 400%. With some payday loans, especially those that are extended, the amount you pay in interest is higher than the original loan amount. Payday loans have a reputation for being predatory, targeting with poor credit and few options, who need quick access to cash to fill pay gaps.

While they’re easy and quick to obtain, payday loans are risky and are not recommended.

Payday Loans Versus Personal Loans

Payday Loans Personal Loans for Bad Credit
Lenders Online, brick-and-mortar Online, brick-and-mortar
Loan Amounts Typically less than $500 $1,000 to $50,000
Loan Terms Two to four weeks One to five years
Interest Rates 200% to 400% APR 36% APR or less

Alternative Installment Loans

While they typically have higher interest rates than personal loans, alternative installment loans have slightly better terms than traditional payday lenders offer.

What Should You Do Before You Apply for a Bad Credit Personal Loan?

You should obtain a copy of your credit report before applying for any type of new credit. You’ll want to make sure there are no errors on your report before you start applying for a personal loan. If there are errors, fixing them can improve your credit score, allowing you to qualify for better interest rates. You can get a copy of your credit report from each of the three major credit bureaus once a year for free at

“When you apply for a personal loan, the creditor will check your credit report to help them determine whether you will repay the debt,” says Rod Griffin, director of public education for Experian, one of the three major credit bureaus. “Your credit history and credit scores help lenders predict the likelihood a person will repay a debt as agreed upon.”

1. Check your credit report. Griffin recommends checking your credit report and score at least three months before applying for credit. Correct errors as soon as possible by disputing them with the credit bureau before applying for a loan. Dispute resolution can take up to 30 days.

Three of the most common errors to look for are:

  • Identity errors, such as an incorrect address or a name spelling. There may be more serious errors, such as a mixed file: accounts that belong to a person who has the same name as you.
  • Incorrect account details, such as accounts that were closed or opened, incorrect credit limits and payment history.
  • Fraudulent accounts: If an identity thief has stolen your identity to open accounts in your name, you’ll want to get this removed from your report as soon as possible.

You can also identify areas for improvement, such as collection accounts you should pay off, or paying down revolving credit lines that exceed 30% of your credit limit.

2. Budget your loan repayment. Come up with a repayment plan to make your payments on time. Your budget should include basic living expenses, savings goals and debt payments. If your lender offers flexible due dates, schedule your payment to coincide with when you are paid by your employer.

3. Shop around for the best quote. Getting a personal loan is a big decision, so take your time to shop around for the best quote possible. Most lenders offer preapprovals, which are rate quotes provided after doing a soft pull on your credit.

4. Beware of scams. Spotting a scam among legitimate online lenders can be difficult. Scammers may not offer you a loan, but instead take the highly private personal and credit information you provided and sell it for misuse. A company may be a scammer if it requires upfront fees, ignores your payment history, initiates contact or contacts you nonstop, asks you to pay with a prepaid card or isn’t registered in your state.

How Can You Apply for a Bad Credit Personal Loan?

The application process often includes these steps:

1. Preapproval. Most online lenders offer a quote on interest rates with a preapproval. This results in a soft inquiry, or a soft pull of your credit, which doesn’t affect your credit score. Lenders will do a hard inquiry, or hard pull, later in the application process.

Common requirements to get approved for a personal loan with bad credit include:

  • Minimum FICO score of at least 620
  • Clean credit history; no judgments, liens and bankruptcies on your credit report; and a history of making on-time payments
  • Stable employment
  • Proof of identification with a passport, driver’s license or voter’s ID. You’ll also need to provide proof of residence such as a utility bill.

2. Choose your loan terms. It’s important to know and understand the terms of your personal loan before you obtain one. You should factor in:

  • The loan amount
  • How frequent your payments are
  • How long you have to pay the loan (the longer the repayment period, the more you’ll have to pay in interest over time, but the lower your monthly payments will be)
  • The APR and whether your loan comes with a fixed or variable interest rate
  • The origination fee
  • If there’s a prepayment fee
  • Late payment fees
  • Any other restrictions or requirements

3. Finalize your application with a hard inquiry. A hard inquiry, or hard pull, shows up on your credit report and can negatively affect your score if you have too many recent inquiries. Hard inquiries may influence your credit score because lenders view someone who is looking for new credit as a higher risk.

An additional hard pull may cause your credit score to dip a few points. Sometimes, a hard inquiry may not affect your score at all, and hard inquiries have a greater impact when you have a short credit history or few accounts.

4. Repay the loan. After your loan funds are disbursed, you will begin making payments. Make on-time payments to avoid late fees and a negative effect on your credit. Delaying payments will result in paying more interest and will increase the cost of the loan.

“If you miss a payment or due date, credit profiles will suffer,” says Joseph Toms, president and chief investment officer of Freedom Financial Network, a financial asset management business. “That can reduce the consumer’s ability to get credit in the future. Before applying, be sure you can make the payment every month.”

How Can You Choose a Bad Credit Loan Provider?

When choosing an online lender for a bad credit loan, there are important features to research. Consumers should evaluate lenders based on the following criteria:

  • Credit history and general qualifications
  • Co-signer option
  • Additional eligibility qualifications
  • Employment requirements
  • Interest rates and types
  • Loan terms
  • Fees and penalties
  • Repayment options

Credit History and General Qualifications

Lenders that offer bad credit loans typically require a minimum FICO score of 620. The maximum debt-to-income ratio, which is the total of your monthly debt payments divided by your gross monthly income, is usually 45%.

You can use a co-signer’s strong credit and income to qualify for a lower rate and better terms on your personal loan. If you default, the co-signer is responsible for making payments on your loan, so he or she offers additional assurance for lenders.

While having a co-signer can boost your chances of a loan with more favorable terms and rates, there are drawbacks. These include potentially damaging the personal relationship with the co-signer as well as his or her credit if you default on the loan. Co-signers and borrowers should understand the terms of the loan and repercussions before taking out a loan.

Additional Eligibility Qualifications

If you have bad credit, lenders may have additional educational, job history and area of study requirements. To compensate for bad credit, lenders typically recommend having a high, stable income.

Some lenders will consider aspects of your background beyond credit, Toms explains. “Traditional credit data does not necessarily account for your complete financial profile and ability to pay debts,” he says. Independent lenders may use different criteria to help evaluate how likely you are to repay a loan.

“Some will have a direct conversation with applicants, which allows them to provide information and context about their credit profile,” Toms says. Other factors include evidence of financial responsibility, such as one’s savings. Seeking a lender that does this can be particularly important for those with less-than-stellar credit.

Some lenders have minimum income requirements, such as $12,000 annual income. Others may not have a specific minimum, but they will consider your employment and the income generated from it when calculating your ability to repay the loan.

Most bad credit lenders offer fixed and not variable interest rates. With a fixed-rate loan, your interest rate remains the same during the term of the loan. A variable-rate loan, on the other hand, has an interest rate that can fluctuate over time, and it is tied to an index rate. The higher your credit score, the lower your interest rate will most likely be.

During the preapproval process, lenders pull a soft inquiry on your credit to determine your potential APR and other terms.

When you’re preapproved for a bad credit personal loan, you’ll receive the terms of the loan, which includes the amount, APR, loan period and loan restrictions. Before accepting the loan terms, these should be reviewed carefully. Make sure the terms are something you’re comfortable with and that you can make on-time payments.

Origination, prepayment, late, returned check, insufficient funds and processing fees may apply.

Lenders charge origination fees for processing the loan. Some personal loan lenders have no origination fees, and others have fees ranging from 1% to 6% percent of the loan. Some lenders offer to add the origination fee to the interest rate. The origination fee may vary by state with some lenders.

Some lenders charge a prepayment penalty fee, which offsets the interest lost when you pay off a loan early. This fee is usually the interest charge for a certain number of months, or a percentage of the remaining balance.

If you are late with a payment, you usually have to pay a late fee. Lenders may allow a grace period of 10 or 15 days before they charge a late fee. Typical late fees range from $15 to $30, with some lenders charging 5% of your monthly loan amount or $15, whichever is greater. Some personal loan lenders do not have late fees. The fees for a returned payment and/or to process a check can be up to $15.

For the borrower’s convenience, lenders usually offer multiple payment options, including autopay, which might get you a discount, online and check. Some lenders provide some flexibility with your payment date, so you can change it to a date that works best for you.

Advertising Disclosure: Some of the loan offers on this site are from companies
who are advertising clients of U.S. News. Advertising considerations may impact
where offers appear on the site but do not affect any editorial decisions,
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does not include all loan companies or all loan offers available in the marketplace.


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