Personal Loans for Bad Credit

Written by the MoneyTools editorial team. See our Editorial Policy and Corrections Policy.

A personal loan for bad credit is an installment loan offered to borrowers with low credit scores or limited credit history. You receive a lump sum and repay it in fixed monthly payments. Because the lender takes more risk, these loans usually cost more, and approval is never guaranteed.

How lenders may evaluate your application

Each lender sets its own criteria. Common factors include:

• Credit history and score: late payments, collections and how much of your available credit you use.
• Income and employment: evidence you can make the payment.
• Debt-to-income ratio: how much of your monthly income already goes to debt payments.
• Collateral or a co-borrower: some lenders accept a savings account, vehicle or co-signer to lower their risk.

APR, origination fees and repayment terms

APR (annual percentage rate) combines the interest rate with certain fees, so it is the best single number for comparing loans. Learn more in APR vs interest rate.

An origination fee is often deducted from the money you receive. On a $5,000 loan with a 5% fee, you'd receive about $4,750 but repay the full $5,000 plus interest. The personal loan calculator shows this effect.

Repayment terms are commonly a few years. A longer term lowers the monthly payment but usually increases total interest.

Secured vs unsecured loans

An unsecured loan relies only on your credit and income. A secured loan is backed by something you own, such as a savings account, certificate of deposit or vehicle. Secured loans may be easier to qualify for or carry a lower rate, but you can lose the collateral if you don't repay.

Prequalification: soft vs hard inquiries

Many lenders let you prequalify with a soft credit inquiry, which does not affect your credit score. A full application usually triggers a hard inquiry, which can lower your score slightly for a time. Prequalifying with several lenders lets you compare estimated rates before you formally apply. A prequalified rate is not a final offer.

How to compare total borrowing costs

1. Compare offers by APR, not just the interest rate.
2. Check the amount you'll actually receive after any origination fee.
3. Calculate total repayment: monthly payment × number of payments.
4. Ask about late fees, prepayment penalties and optional add-on products.
5. Make sure the monthly payment fits your budget. The budget calculator can help.

Warning signs of predatory lending

• "Guaranteed approval" or "no credit check" promises.
• Requests for an upfront fee before you receive the loan.
• Pressure to sign immediately or to borrow more than you asked for.
• No clear APR or written loan terms before you sign.
• A lender that isn't licensed in your state. Check with your state regulator or NMLS Consumer Access.

The Consumer Financial Protection Bureau explains payday and other short-term loans at consumerfinance.gov. The FTC warns about advance-fee loan scams at consumer.ftc.gov.

Alternatives to high-cost borrowing

• Credit unions: some federal credit unions offer small-dollar Payday Alternative Loans with rate limits set by the NCUA. Find one with the NCUA credit union locator.
• Talking to creditors: many will set up a hardship or payment plan.
• Nonprofit credit counseling: agencies can help with a budget or debt management plan.
• A co-signer or secured loan, if you understand the risks.
• A payoff plan for existing debt: try the debt payoff calculator.

Looking for lenders where you live? See how to find legitimate loans near you.