A FICO® Score☉ below 580 is considered a poor credit score, according to the score ranges FICO publishes. If your score falls within that range, some lenders won't offer you a loan because your credit score is below their minimum requirement. Not only that, but the lenders who are willing to work with you might charge relatively high interest rates and fees. Still, knowing where to look—and where you might find lower-cost alternatives—is important if you're trying to get a loan.
Here's how to get a loan with bad credit, plus what to do if your loan application is denied.
Steps to Get a Loan With Bad Credit
Finding and getting a personal loan can be more difficult if you have bad credit. But here are six steps you can take to compare your options and try to get the best loan possible.
1. Check Your Credit Score and Credit Reports
Knowing where you stand is an important first step.
- Get your FICO® Score and credit report for free from Experian. Your free account includes FICO® Score tracking, your Experian credit report with explanations of what's helping or hurting your score, and ongoing credit report monitoring with real-time alerts.
- See if you have access to other free credit scores. Many lenders, credit card issuers and credit counselors offer free credit scores to current customers or clients.
- Get free copies of your credit reports. You can use AnnualCreditReport.com to get free copies of your credit reports from all three credit bureaus—Experian, TransUnion and Equifax. But these don't come with credit scores.
There are many types of credit scores, and your scores can vary depending on the scoring model and which of your credit reports it analyzes. You also won't necessarily know which credit score a lender will use when reviewing your loan application.
Still, checking several scores can give you a good sense of where you're at, and you can find additional paid and free ways to check your credit scores if you're not satisfied with the options above.
Learn more >> How Do You Check Your Credit Score?
2. Understand the Costs of Getting a Loan With Bad Credit
Having bad credit can make qualifying for a loan more difficult, and you might be tempted to accept the first loan offer you receive. But take time to understand the long-term cost of getting a loan—and the potential benefit of shopping around.
Say you want to borrow $10,000 and repay the loan over three years:
- If you have bad credit, you might receive a loan offer with a 5% origination fee and a 29% interest rate. You'd wind up paying about $419 each month and $5,086 in interest by the time the loan is paid off.
- If you have good credit, you might get a loan offer with a 1% origination fee and a 10% interest rate. You'll pay about $323 each month and $1,616 in total interest over the life of the loan.
| Example: $10,000 Loan Costs | ||
|---|---|---|
| Bad Credit | Good Credit | |
| Origination fee | 5% | 1% |
| Interest rate | 29% | 10% |
| Monthly payment | $419 | $323 |
| Total interest paid | $5,086 | $1,616 |
Lenders often take origination fees out of the loan's proceeds, so having bad credit could lead to getting less money from the loan and paying more interest overall.
When you compare loan offers, you'll see that lenders often advertise an annual percentage rate (APR) for their loans. The APR takes a loan's interest rate, fees and repayment term into account, which is why comparing APRs can help you determine which loan offer has the lowest annualized cost.
You can use Experian's personal loan calculator to get an estimate of your monthly payments. If the loan has an origination fee, you'll still have to repay the full loan amount even though the lender withholds the amount of the fee.
Personal Loan Calculator
†The information provided is for educational purposes only and should not be construed as financial advice. Experian cannot guarantee the accuracy of the results provided. Your lender may charge other fees which have not been factored in this calculation. These results, based on the information provided by you, represent an estimate and you should consult your own financial advisor regarding your particular needs.
Try the full Personal Loan Calculator Opens a new window with more features.
3. Look for Low-Cost Options
You might be able to get a relatively low-cost loan even if you don't start with a lender that specializes in loans for people with bad credit. Some alternative sources for loans include:
- Friends and family: Borrowing money from friends or family members can be risky—you don't want money troubles to ruin a relationship. But it may be a good option if you're struggling to qualify for a low-cost loan from a lender and you're certain you can repay the loan.
- A creditworthy cosigner: Adding a cosigner with good credit to your loan application can increase your approval odds and help you get a loan with more favorable terms. Cosigners will need to sign the application and take legal responsibility for the loan, and missing payments could hurt their credit.
- Community organizations and lenders: Some nonprofits and community development financial institutions offer low-cost loans to eligible borrowers. These generally don't require good credit, but the organization might only work with people who live in certain areas and have limited income or assets. There are also different programs for specific types of loans, such as small dollar loans, student loans, business loans and mortgages.
4. Shop Around for Lenders Who Offer Loans for Bad Credit
There are lenders that specialize in unsecured personal loans for people who have bad credit. The loan requirements and offers can vary, so shopping around is important.
Generally, you can find these loans from online-only lenders. You may be able to get offers with high loan limits and have the funds in your bank account within a few business days. The origination fees may be as high as 12% and the APR could be over 30%.
Some banks and credit unions also offer personal loans that don't require good credit. However, they tend to have small loan limits. For example, some credit unions offer payday alternative loans (PALs) with a maximum loan amount of $2,000 and maximum APR of 28%.
5. Get Prequalified for a Loan
Getting prequalified for a loan can be a simple way to see your estimated loan offers without hurting your credit score.
Only some lenders offer prequalifications. When they do, you may need to submit basic information about yourself and agree to a credit check. The credit check generally results in a soft credit inquiry, which doesn't affect your credit scores. Submitting a loan application often leads to hard inquiry, which might hurt your scores a little.
If you're prequalified, you may be able to see loan offers with estimated rates, terms and loan amounts. You can then choose an offer and submit an application. If you don't get prequalified, you'll know that you likely won't get approved and can hold off on submitting an application to avoid a new hard inquiry.
Rather than going lender by lender, you can use your Experian account to get matched with loan offers from multiple lenders based on your credit profile. Getting matched and comparing offers doesn't impact your credit scores.
Find a personal loan matched for you
Let us know what type of loan you’re looking for from a list of options.
Tell us your income and address—then verify everything is correct.
See and compare your best loan offers with no impact to your credit.
6. Submit an Application
Once you've compared several loan offers, choose the offer that best fits your needs and submit the complete application. The process may vary slightly depending on the lender, but you'll generally have to submit:
- Personal information: This includes your name, date of birth, Social Security number and contact information.
- Verifying documents: You may need to verify your identity, residence and income by uploading copies of acceptable documents, such as a government-issued ID, utility bill and tax return.
You may also need to specify how you plan to use the loan and share the account details for where you want the money deposited.
Take a minute to review the terms and offer once you're approved: You don't have to accept the loan, and the offer might have changed since you got prequalified.
What to Do if You're Denied for a Loan
If you're denied a loan, start by reviewing the reason(s) for the loan rejection. If you submit an application that's denied due, at least in part, to information from your credit report, the lender should send you an adverse action letter, which may detail the reasons for the denial.
You have the right to request a free credit report after a company denies your loan application based on your credit. You can then review the report for errors that may have impacted the decision.
Reasons your loan may be denied include:
- A low credit score
- Not enough credit history
- Previous late payments
- A recent bankruptcy
Lenders may also deny your application for reasons that aren't related to your credit, such as failing to meet the eligibility requirements, lack of employment or too much outstanding debt.
Reviewing the letter can help you figure out how to increase your chances of getting approved later. For example, if your debt-to-income ratio (DTI) is too high, you might want to focus on lowering your DTI by increasing your income or paying off loans or credit cards.
Whatever the reason for the denial, you can try to:
- Get preapproved with a different lender
- Get a cosigner
- Look into alternatives to a loan
You can also focus on improving your credit to help increase your chances of approval when you reapply.
Learn more >> What to Do if Your Loan Is Denied
Alternatives to Loans When You Have Bad Credit
Even if you get approved, you might not want to accept a loan because of the high cost, or the loan amount might not be high enough to cover all your costs. Here are a few alternatives to consider:
- Credit cards: Credit cards usually have higher interest rates than personal loans, but that's not always the case. Additionally, some credit cards have introductory 0% APR offers for new cardholders. However, you might not receive a high credit limit.
- Paycheck advance apps: Some apps and fintech services offer paycheck advances and small loans with low fees and interest rates. There's often no credit check or credit score requirement, but you may need to pay a membership fee or pay a fee to expedite transfers to your bank account.
- Hardship options: You might be able to lower some of your current bills instead of borrowing more money. For example, you can ask your lenders if you can put your loans into forbearance to temporarily pause payments. Or, see if they have any hardship options that can lower or pause your payments. Forbearance and other hardship programs tend to be temporary options in response to a setback, such as a lost job, natural disaster or medical emergency.
- Financial assistance: Look for other options that can help cover necessary expenses to free up money, such as rent assistance and food banks. United Way's 211 hotline and website can help you find local, state and federal programs you're eligible for, making it a good place to start your search.
If you're struggling with credit card debt or setting a budget, you could also reach out to a nonprofit credit counselor for assistance. They may be able to review your finances to create a manageable budget, or even get you on a debt management plan to help you pay off credit card debt.
Frequently Asked Questions
You can find ways to borrow money even if you have a credit score that's around or below 500. However, if you don't need to borrow money right away, you may want to focus on improving your credit before applying for a loan. Otherwise, you might be stuck having to choose between options that have high fees and interest rates.
The easiest loans to get are loans that don't require a credit check, such as a payday loan or pawnshop loan. But these should be a last resort due to their high fees and restrictive terms. Some alternative options with lower fees and interest rates include payday alternative loans from credit unions and advances from early payday apps, but these tend to have low limits. For larger loans, try to get prequalified with several lenders to find out which one gives you the best offer.
The steps you'll want to take to improve a poor credit score can depend on what's hurting your score in the first place. In general, paying bills on time, bringing past-due accounts current and paying down credit card balances can be important.
In some cases, settling or paying off collection accounts could also help. If you don't have any open credit cards or loans, look into options that can help you build credit, such as secured credit cards or credit-builder loans.
Focus on Improving Your Credit
Getting a loan with bad credit is possible. But unless you're looking for an emergency loan, you may want to focus on improving your credit before borrowing money.
You can create an account or log in to your Experian account to get personalized insight into your credit and suggestions for how to improve your score. You can also track your FICO® Score to see how changes affect your score, and get matched with credit card or loan offers based on your score as it improves.