Bad credit loans

While many personal loan lenders require borrowers to have good to excellent credit, several lenders also offer personal loans designed for borrowers with bad credit. Because bad credit personal loans are more of a risk to the lender, their interest rates are usually higher compared to the rates on good credit loans — meaning you’ll pay more overall for one of these loans.

A good way to understand what a bad credit loan will end up costing you is to look at the annual percentage rate (APR). This percentage represents both the total amount of interest plus any fees — such as origination or late fees — that you’ll pay on a yearly basis for your loan.

Also, keep in mind that taking out a personal loan might help your credit in the long run. For example, if you’re able to reduce your credit utilization by consolidating debt with a personal loan and make all your payments on time, you could see a gradual improvement of your credit score.

A bad (or poor) credit score is generally considered to be a score below 640. Here are the typical credit score ranges:

• Poor (less than 640): It can be hard to qualify for a personal loan if you have a score in this range — unless you work with a lender that offers bad credit loans. You might also be able to get approved by applying with a cosigner. Borrowers with poor credit are typically offered the highest available interest rates.

• Fair (640 to 699): While you might have a somewhat easier time getting a personal loan with fair credit, you can generally expect to pay higher interest rates. Applying with a cosigner might help you qualify for a better interest rate.

• Good (700 to 749): Having a good credit score will help you get approved for personal loans with most lenders, as well as get you better interest rates. If you have a good credit score, it's unlikely that you'll need a cosigner to qualify for a loan — though having one might help you get a better interest rate than you'd get on your own.

• Excellent (750 and above): With an excellent credit score, you’ll likely qualify for the vast majority of personal loans and be offered the lowest interest rates advertised by lenders.

If you’re ready to apply for a personal loan, follow these four steps:

1. Check your credit. When you apply for a personal loan, lenders will check your credit to determine your interest rate — so it’s a good idea to see what shape your credit is in before you apply. You can use a site like AnnualCreditReport.com to review your credit reports for free. If you find any errors, dispute them with the appropriate credit bureau to potentially boost your score.

2. Compare lenders and pick a loan option. Be sure to compare as many lenders as possible to find the right loan for your needs. Consider not only interest rates but also repayment terms, any fees the lender charges, and qualifying requirements. After researching your lender and loan options, choose the loan that works best for you.

3. Complete the application. Once you’ve picked a lender, you’ll need to fill out a full application and submit any required documentation — such as tax returns or pay stubs.

4. Get your funds. If you’re approved, the lender will have you sign for the loan so the money can be released to you. The time to fund a personal loan is usually about one week — though some lenders will fund loans as soon as the next business day after approval.

This depends on the lender. For example, online lenders are usually the fastest option, sometimes offering approval decisions within minutes. Traditional banks and credit unions, on the other hand, could take longer.

The time to fund a personal loan also varies by lender. Here are the funding times you can typically expect:

• Online lenders: Less than five business days

• Banks: One to seven business days

• Credit unions: One to seven business days

Some lenders provide fast personal loans with quicker funding times. For example, several Credible partner lenders offer next- or even same-day personal loans.

If you want to get your funds as soon as possible, here are a couple ways to avoid delays:

• Fill out your loan application as accurately as you can.

• Provide any required documentation in a timely manner.

When you apply for a personal loan, the lender will likely ask you to submit some documentation. The specific documents requested will depend on the lender but could include:

• Personal identification, such as a government-issued ID

• Social Security card, to verify your identity

• Income verification, such as tax returns or pay stubs

• Bank statements, to further demonstrate your income

Be sure to read any documentation requests from the lender carefully — this way, you can make sure you submit the most accurate information possible.

Most personal loans are unsecured, meaning you don’t have to worry about collateral. But some lenders provide secured personal loans, which are secured by collateral like a car or jewelry.

Because there’s less risk to the lender with secured loans, you might have an easier time qualifying for one if you have bad credit. But keep in mind that if you can’t make your payments, you risk losing your valuable item.

Other options you might come across when trying to get a personal loan with bad credit include car title loans, payday loans, or pawn shop loans. While these loans can be easier to qualify with poor credit, they also tend to come with astronomical interest rates and fees. Because of this, as well as the risk of predatory lending practices, you should only use these types of loans as a last resort.

Shopping around and checking your options from multiple lenders likely won’t have much of an effect on your credit so long as the lender only performs a soft credit check. For example, comparing your prequalified rates from Credible’s partner lenders only involves a soft credit pull that won’t hurt your credit.

When you apply for a personal loan, the lender will perform a hard credit check to determine what interest rate to offer you. This could cause a slight dip in your credit score — though the effect is usually only temporary, and your score will likely bounce back within a few months.

Additionally, taking out a personal loan could have a positive effect on your credit score in a few ways. For example, you could:

• Build a positive payment history by making on-time payments.

• Diversify your credit mix by adding a personal loan.

These potentially good effects on your credit score could end up far outweighing any initial negative consequences. Just be sure to only take out a personal loan if you can comfortably afford it so you don’t risk damaging your credit down the road by missing payments.

If you have bad credit, applying for a personal loan with a cosigner could greatly improve your chances of getting approved. Even if you don’t need a cosigner to qualify for a personal loan, having one might get you a lower interest rate than you’d get on your own.

A cosigner can be anyone — such as a parent, other relative, or trusted friend — that has good credit. Just remember that a cosigner shares responsibility for the loan, which means they’ll be on the hook if you can’t make your payments.

Also keep in mind that while some lenders allow cosigners on personal loans, not all of them do. Here are Credible’s partner lenders that offer cosigned personal loans:

• FreedomPlus
• SoFi

Several strategies could help you improve your credit score so you can more easily qualify for personal loans and better rates in the future. Here are some things you can do to start boosting your credit:

• Make on-time payments on all your bills. Your payment history is the biggest factor that makes up your credit score. If you pay all your bills on time, you could see an improvement in your score over time.

• Pay down credit card balances. Your credit utilization ratio is the amount you owe on revolving credit lines (like credit cards) compared to your total available limits — it’s also another major factor that determines your credit score. If you can pay down balances on credit card accounts, your score could go up.

• Limit new credit if possible. Taking out new loans can temporarily lower your credit score while also adding to your overall debt loan. Try to avoid applying for new loans while working to build your credit.

Many lenders offer personal loans, which is why it’s important to compare as many of them as possible to find the right lender for you. As you research lenders, be sure to consider interest rates, repayment terms, and any fees the lender charges so you can get a loan that best suits your needs and financial situation.

Keep in mind that the best personal loan lenders provide low interest rates, minimal fees, and inclusive eligibility requirements. Because Credible only works with reputable, fully vetted lenders, you never have to worry about payday scams.