How to Get a Personal Loan With Bad Credit - NerdWallet (2024)

A low credit score doesn’t have to keep you from getting a personal loan to cover an emergency or consolidate debts, but borrowers with bad credit scores (629 or lower) may need to put in extra work to qualify.

Here are the steps to get a personal loan with bad credit, tips to boost your chances of approval and alternatives to consider.

How to get a loan with bad credit

1. Pull your credit

Lenders typically have a minimum credit score requirement, and you could be rejected if your score falls below it. Many financial companies, including NerdWallet, let you access your credit score for free.

Pull your full credit report for a detailed look at your credit behavior over the years. This is what a lender will see when you apply for a loan. You can view your report from all three bureaus (Equifax, Experian and TransUnion) for free at AnnualCreditReport.com.

Try to address any red flags, like a delinquent account you weren’t aware of or a credit inquiry you didn’t approve, before applying.

It may take a month or two to resolve any issues, but doing so could improve your chances of approval or lower your rate on a personal loan.

2. Review your finances

Personal loan lenders like to see that you have at least enough income to cover your monthly bills and other debt payments plus a new loan payment.

Lenders use debt-to-income ratio (DTI) to assess your ability to repay a loan. This is the percent of your monthly income that goes to debt payments, and lenders typically like to see it below 50%.

Calculate your DTI and review your monthly budget to see how much room you have left for a new loan payment. Ideally, the loan payments fit comfortably into your budget and leave room for savings and emergency expenses.

3. Calculate your monthly payments

This will help you understand what adjustments you may need to make to the loan amount and repayment term in order to get a payment you can afford.

4. Compare lenders

No two lenders have the same borrower requirements, rates or features, so it pays to compare multiple options, including online lenders and credit unions. Here’s what to look for:

5. Pre-qualify with a soft credit pull

Pre-qualification lets you see your potential loan rate, term, amount and monthly payment without affecting your credit score. Lenders often show pre-qualified applicants multiple loan offers with different loan amounts and terms.

Pre-qualify with multiple lenders to find the loan with the lowest rate and monthly payments that fit your budget.

6. Apply with a hard credit pull

Once you’ve pre-qualified and chosen an offer, it’s time to submit a formal application. Gather the documents you need to apply for a personal loan beforehand to speed up the process. These can include W-2s, pay stubs and financial statements.

An online application can take a few minutes, while applying over the phone or in person may take longer. At this stage, the lender will do a hard credit check, which temporarily lowers your credit score.

Assuming the lender doesn’t require extra documentation, you’ll likely receive a loan decision the same or next day after applying. Most lenders can send loan funds a day or two after approval.

7. Make on-time payments to build credit

Almost all personal loan lenders report payments to the three major credit bureaus, so on-time payments can build your credit score, but missed payments will hurt it.

Tip to avoid missed or late payments: Add them to your monthly budget and set up automatic payments. The latter gets you a small rate discount with some lenders.

Tips to get a approved for a personal loan with bad credit

Borrowers with the lowest credit scores — below 550 — are unlikely to qualify for most personal loans. However, bad-credit borrowers can bolster their applications in a few ways, depending on what the lender offers.

Where to get a personal loan with bad credit

Credit unions

You must be a member of a credit union to borrow from it, but they’re one of the best places to turn if you have bad credit.

Credit unions consider a loan applicant’s history as a member when making a decision, which means a good relationship with the credit union could help with approval.

You may also get a lower rate at a federally-chartered credit union because they cap annual percentage rates at 18%. Rates from other lenders can reach 36%.

Online lenders

Some online lenders, like Avant and Universal Credit, lend to bad-credit borrowers. Online lenders may include helpful features like fast funding and advice to help build your credit.

Bad credit loans to avoid

Predatory lenders take advantage of consumers with low credit scores who need cash by charging high interest rates for no-credit-check loans. Though you can easily get a short-term loan from one of these lenders, they may intentionally make their loans difficult to repay, effectively keeping you in debt.

Payday lenders

Payday loans are small loans of a few hundred dollars that you get without a credit check and agree to repay along with a fee on your next payday. Payday loans are notoriously difficult to repay because the fees are exorbitant — about $10 to $30 per $100 borrowed, according to the Consumer Financial Protection Bureau.

Borrowers who can’t repay payday loans typically take another loan to repay the first, thus entering a cycle of debt.

High-interest installment lenders

A high-interest installment loan can be just as damaging to your finances as a payday loan. These lenders charge double- or triple-digit APRs on loans of a few hundred or thousand dollars with terms between a few months and a few years.

If a borrower can’t make the high monthly payment, the lender may offer to refinance the loan and extend the repayment term. This process can be done multiple times and result in the borrower paying as much in interest as the amount borrowed, if not more, according to a study from the Center for Responsible Lending.

Alternatives to personal loans for bad credit

If a personal loan isn’t an option, consider these alternatives, which may not require a credit check to qualify.

Hardship programs. Lowering or pausing monthly credit card, mortgage, rent or utility payments may free up enough cash to bridge an income gap. Credit card issuers, mortgage lenders and utility companies often have online hardship applications, but you may have to go to a landlord directly.

Medical bill assistance. If you’ve received a big doctor or hospital bill, you may not have to pay it right away. Options like payment plans through your provider’s office, medical credit cards and medical bill advocates could ease the burden.

Family loans. Borrowing money from friends and family can be tricky, but the benefits may outweigh the risks. Family loans don’t require a credit check, can cost little or no interest and can be repaid on terms that work for the borrower and lender. Set up a detailed family loan agreement to ensure repayment goes smoothly.

Buy now, pay later. A “buy now, pay later” loan can finance a large, necessary purchase without a hard credit check or interest charges. This at-checkout financing option typically requires you to pay a quarter of the cost up front and the rest in three, equal bi-weekly installments.

Cash advance apps. Apps like EarnIn and Dave provide paycheck advances up to a few hundred dollars with no credit check and low fees. Instead, the app uses bank account information to decide how much to advance, and you typically repay it on your next payday.

Debt payoff options. If you’re struggling to pay down debt, consider repayment options like the snowball and avalanche methods or a debt management plan.