Credible takeaways
- Various types of bad-credit loans exist, including personal loans, payday alternative loans, cash advances, and more.
- Bad-credit loans like payday loans can be predatory, so it’s important to carefully review their rates and terms.
- Also consider alternatives like borrowing from a friend or family member, crowdfunding, or picking up side work.
If you have bad credit, you may find it difficult to get a loan. Approval for most loans hinges on two things — your credit and income. If either is lower than average, it can result in denials or undesirable annual percentage rates (APRs) and terms. However, there are a variety of loan types designed for people who have bad credit.
Bad-credit personal loans
A bad-credit personal loan refers to an installment loan that’s available to borrowers with bad credit. They tend to be unsecured, but some lenders allow applicants to pledge collateral to strengthen their applications. Upon approval, you receive a lump sum amount and repay it over a set term (often a year or more).
There are three types of bad-credit personal loans:
- Unsecured loans don’t require collateral to secure the loan, which could make it difficult to qualify or get a low APR.
- Secured loans require collateral, like your car or house, to secure the loan. As a result, you may be able to qualify for the loan or get a lower APR. But If you fail to make payments, the lender can seize your asset. These loans come with less risk for the lender, but more risk for you.
- Cosigned loans: If you don’t want to risk your house or car, you can also get a cosigner to help you qualify or get approved for a lower APR. Typically someone with good credit, a cosigner assumes equal responsibility for the loan. In other words, if you default on your monthly payments, they're obligated to make them. This could strain your relationship with your chosen cosigner and damage their credit if you miss or make late payment. So make sure you can afford the payments.
Lenders charge interest on bad-credit loans and may charge origination fees up to 12% of your loan amount, which is typically deducted from the loan funds you receive. The average interest rate for a 24-month personal loan was 12.33% in August 2024, according to the Federal Reserve.
Nineteen states and Washignton, D.C., cap the APRs licensed non-bank lenders can charge on high-cost installment loans at 36%. However, 13 states allow APRs between 36% and 60%, three only restrict APRs that are considered “unconscionable,” and two have no caps. You can check your state’s APR caps with the National Consumer Law Center.
While personal loan amounts often range from $600 to $100,000 or more, and terms can extend up to 7 years or longer, bad-credit loans typically come with smaller loan amounts and shorter terms.
Check Out: How Much of a Personal Loan Can I Get?
Good to know
You can prequalify with a lender to see possible rates without impacting your credit score. Prequalification is not an offer of credit. The final rate you get may be different, and when you formally apply, your score may take a small hit.
