The Best Loans for Bad Credit

When you’re strapped for cash, a low credit score can make it harder to be approved for a traditional loan, but you may still have loan options, such as personal loans or credit builder loans.

In this article, we explain what lenders consider to be bad credit as well as the best loan options for bad credit, so you can choose the right loan regardless of your credit score or circumstances.

Key points

• Bad credit, such as a FICO® Score below 580, makes borrowing harder but options are still available.
• There are several loan types still available with bad credit, including personal loans, credit builder loans, family and friends loans, and student loans.
• Before applying, check your credit score, consider getting prequalified, and compare interest rates, fees, and repayment terms across multiple lenders.

Table of contents

• What is considered bad credit?
• Types of bad credit loans
• Where to get loans if you have bad credit
• How to choose the best loan for your needs
• How to apply for a loan with bad credit
• Will a loan help my credit score?
• Building credit over time

What is considered bad credit?

Bad credit is generally defined as having a low credit score, but what qualifies as “bad” can vary depending on the scoring model used. For example, FICO® Scores categorize a score below 580 as poor credit. ^[1]

The main factors that make up your credit score include payment history, amounts owed, length of credit history, credit mix, and new credit accounts.^[2][3]

Lenders use credit scores to help determine whether to approve applications for products such as mortgages, auto loans, personal loans, and credit cards. They also use your score to decide what interest rates to offer and how much credit to extend. In general, higher credit scores may qualify for lower interest rates and better terms, while lower scores may result in higher rates.^[4]

A credit score is a numerical representation of your creditworthiness based on the information in your credit report. FICO® and VantageScore are the two most commonly used scoring models, and each weighs this information slightly differently. FICO® Scores generally range from 300 to 850 and are designed to summarize the information in your credit report into a single number that lenders can use when evaluating credit applications.^[5]

Types of bad credit loans

The following sections break down the different types of loans you can consider when you have bad credit. In addition to your credit score, lenders look at your debt-to-income ratio, other factors such as length of employment history, and the type of loan you’re applying for when assessing your creditworthiness for these types of loans.

1. Personal loans

Personal loans provide borrowers with a lump sum of money that can be used for a variety of expenses, and they come in two forms:

• Secured: With secured loans, borrowers provide collateral — such as a vehicle, savings account, or other asset — that the lender can claim if the loan is not repaid according to the terms. The lender can seize the asset you put up for collateral if you don’t pay according to the terms of the loan. Additionally, because you put up something valuable as collateral, lenders may take on less risk than with an unsecured loan. However, this does not always result in lower interest rates, especially for borrowers with bad credit, where some secured loans — such as title loans — may still come with high costs.
• Unsecured: An unsecured loan is a type of loan that does not require collateral. Instead, lenders rely on your credit score and repayment history to assess your eligibility and determine loan terms. Because there is no asset backing the loan, unsecured loans are generally considered higher risk for lenders, which may result in higher interest rates compared to secured loans. Borrowers are still responsible for paying interest and any applicable fees, but they do not risk losing an asset if they are unable to repay the loan.^[6]

If you have excellent credit, lenders may offer you a lower interest rate, but even if you have poor credit or no credit history, you still may find lenders that cater specifically to your financial situation.^[7]

The best personal loans you can qualify for may be found with online lenders who list their minimum credit score clearly on their site. Armed with that information, you can know whether a loan company might consider you for a personal installment loan before you fill out an online application and undergo a credit inquiry.

2. Credit builder loans

A credit builder loan works differently from a traditional loan. Instead of receiving the loan funds upfront, the lender places the loan amount into a secured savings account or certificate of deposit (CD). You then make fixed monthly payments toward the loan. Once the loan is fully repaid, the lender releases the funds to you, minus interest and fees.

3. Family and friends loans

Some borrowers may choose to borrow from family members or friends if they are unable to qualify for traditional loans, especially if they have a bad credit score or no credit history. Unlike finding a co-signer to meet a lender’s requirements, family members or friends offer these loans to you without the traditional loan structure, such as a credit check or loan application.

Although these loans are informal and between people who know each other well, they shouldn’t be structured informally or entered into lightly. These informal loans carry serious risk. You could damage your relationship if you can’t pay back the loan, and if you’re the one lending money, you have to consider that you may never get paid if the loan goes into default, since you have little recourse to enforce the informal agreement.^[8]

4. Student loans

Student loans are funds borrowed to help pay for education expenses, which must be repaid over time, typically with interest. Federal student loans are issued by the U.S. Department of Education, while private student loans are offered by private lenders.^[9]

Federal student loans are often a first option for borrowers, including those with limited or poor credit, as many do not require a credit check for undergraduate students. Some federal loans also offer benefits such as interest subsidies. For example, with Direct Subsidized Loans, the U.S. Department of Education pays the interest while you are enrolled at least half-time, during a six-month grace period after leaving school, and during approved deferment periods.^[10]

Private student loans typically require a credit check, and approval and loan terms depend on your credit profile. Because of this, borrowers with lower credit scores may face higher interest rates or need a co-signer.

5. Pawnshop loans

Pawnshop loans are short-term loans secured by personal property, such as jewelry, electronics, or other valuables. The lender holds the item as collateral, and repayment is typically required within a short period. If you do not repay the loan within the agreed timeframe, the lender may keep or sell the item to recover the cost of the loan. Because of this, pawnshop loans can carry a risk of losing your property if you are unable to repay the loan.^[11]

6. Payday loans

These short-term, high-interest rate loans allow you to borrow in advance of your next paycheck by either giving the payday lender a post-dated check for the loan amount plus payment fees or by giving the lender authorization to debit the funds from your bank, credit union, or prepaid card account. The loans are typically limited around $500, although some limits range above and below that.

Payday loan availability varies by state. In some states, these loans are not permitted, or lenders may choose not to operate due to limits on interest rates and fees. ^[12] To qualify for this loan, you need a bank or credit union account, proof of income, and an ID showing that you are over 18 years of age.^[13]

Payday loans charge fees instead of interest, and at first look, the fees may look reasonable. However, when you calculate those fees into an APR, the APR is extremely high. Because of their fees and short payback period, payday loans are extremely risky and should be avoided when possible.

Where to get loans if you have bad credit

If you’re looking for a secured or unsecured personal loan, the following institutions offer installment loans that cater to a variety of credit scores, even those with bad credit:

• Online lenders: You can often get a response quickly from online lenders, plus shopping around and comparing rates may be easier with lenders who are strictly online.
• Banks: Most banks allow you to compare rates and terms online, and many offer online applications, though in some cases you may need to visit a branch to complete the process.
• Credit unions: Because you usually must be a member to be in a credit union, they may know you and your situation better than a bank or online lender. Talking personally with someone at a credit union may help you find out more about rates and terms and what they can offer you specifically.

Each lender has its own established credit ranges that define everything from excellent credit to poor credit. Just as the credit ranges may vary, the interest rates they offer, loans fees, and thus the APRs, vary as well. Some lenders may be more strict than others so compare lenders carefully. Although you may find lenders with a low threshold of minimum requirements and terms for eligibility, you may also be paying an extremely high cost for those loans. So be sure to examine the loan terms carefully and not just the borrower requirements in your search.

How to choose the best loan for your needs

You may benefit by shopping around when you need to secure a personal loan with bad credit. Many financial institutions like banks and credit unions extend unsecured personal loans, and some lenders cater specifically to people with bad credit or no credit history. However, rates and fees can vary from lender to lender. So carefully evaluate the loan terms and customer reviews for each lender and avoid loans that require money from you without a contract, and carefully consider whether a fixed or variable interest rate is right for your situation, as variable rates may change over time.^[14]

When you need a personal loan, you can shop around, review the FAQs on the lender’s website and ask yourself the following questions to determine if you might pre-qualify and to help you choose the best loan for your needs:

• Do you meet the minimum eligibility requirements? All lenders have requirements that customers must meet before they are approved for a loan. These may include minimum requirements for income, debt-to-income ratio and credit score. If you do meet the minimum requirements, you’re ready to ask yourself the next question.^[14]
• Are the interest rates and fees affordable? The answer to this question may depend on if you meet the minimum credit score requirements. The cost of bad credit can result in higher interest rates because lenders typically use your credit score to calculate the interest rate and fees associated with your loan. If these costs fit your budget, you can ask yourself the next question.
• Are the repayment terms reasonable? Typically, the longer it takes to pay back the loan, the higher your interest rates may be. While term lengths vary, longer repayment periods can mean you end up paying more over the life of the loan due to total interest even though your monthly payments are low. Shorter repayment terms mean eliminating your debt sooner but you may need to make a higher monthly payment.^[14]

How to apply for a loan with bad credit

When shopping around for loan rates, you may wonder what the difference is between becoming prequalified or preapproved. The terms may mean different things, depending on the lender and credit product, and some lenders may even use these terms interchangeably. However, both terms typically mean that a lender has evaluated your credit at some level to see whether you may qualify for a loan or credit product, and neither term means you’re guaranteed to be approved.^[15]

You might initiate getting prequalified by submitting a prequalification application listing your basic financial information The lender then makes a soft inquiry into your credit to evaluate your application and informs you of whether you are prequalified. Although the prequalification process doesn’t confirm approval, it does allow you to gauge your chances for possible approval as well as check out the rates and fees while you compare different lenders.^[15]

Preapproval may refer to either getting preapproved online for a credit card or prescreened, unsolicited offers for loan or credit products. Preapprovals are no guarantee that you’ll qualify, but you can apply for these offers after you receive them, which typically means authorizing a hard credit inquiry. Credit scoring models may treat multiple hard inquiries as a single inquiry when you are rate shopping for certain types of loans, such as auto or home loans. If these inquiries occur within a short period — typically around 14 days, though some models allow up to 45 days — they are generally counted as one inquiry. This means shopping around for the best rate within a limited timeframe may have little, if any, impact on your credit score. ^[15]

To apply for a loan with bad credit, follow these steps to maximize your results:

1. Check your credit score and determine what size loan payment you can make. If you know your credit score, you can narrow down which lenders to approach based on their minimum requirements, plus you can see where you fall in their credit ranges, which determines your APR. Then look at your expenses and your budget to figure out how much of a loan payment you can afford without overextending yourself.
2. Get prequalified and compare offers. Lenders combine your interest rate, origination fees and other charges for your loan into your total APR. Check to see which lender has loan terms that fit your budget, and evaluate the loan terms for things like grace periods, charges like late fees and other things that affect how the loan fits within your financial situation.
3. Choose a lender and complete a formal application. When you’ve narrowed your selection, begin the formal application process, which involves providing your Social Security or ITIN number and other details about your financials, such as your income. At this stage, the lender will conduct a hard inquiry to check your credit.
4. Wait for a loan decision. After submitting your application, the lender will review your information, including your credit, income, and any supporting documents, before making a decision. The time it takes to receive a decision can vary depending on the lender and the type of loan, with some providing decisions quickly and others taking several days.

Will a loan help my credit score?

Depending on how you handle your loan, a loan can either negatively or positively impact your credit score. If you use a personal loan to pay off credit cards, you can reduce your credit utilization ratio, and making timely payments can help you create a positive payment history, which is the biggest factor that goes into calculating your credit score.^[16]

Missing a payment or making a late payment may negatively impact your credit score since it affects your payment history, which is the most important factor when calculating your credit score.^[17]

Building credit over time

Before taking out any type of loan, weigh the pros and cons to choose the right loan type for your circumstances. You can work on building your credit by considering a credit builder account through Self. That way, you’re building your credit history and savings (minus interest and fees) at the same time.

Debt consolidation or credit counseling may be an alternative if you need a loan due to existing debt. You can also find other tools and tips through Self to build your credit to give yourself a better chance at securing a loan when you need it.

Sources

1. CapitalOne.com. “What is a Bad Credit Score?” https://www.capitalone.com/learn-grow/money-management/what-is-a-bad-credit-score/. Accessed March 5, 2026.
2. myFICO. “What’s in My FICO Scores?” https://www.myfico.com/credit-education/whats-in-your-credit-score. Accessed March 5, 2026.
3. Forbes Advisor. “What Is A VantageScore?” https://www.forbes.com/advisor/credit-score/what-is-vantagescore/. Accessed March 5, 2026.
4. Experian. “Why Do People With Higher Credit Scores Get Lower Interest Rates?” https://www.experian.com/blogs/ask-experian/why-do-people-with-higher-credit-scores-get-lower-interest-rates/. Accessed March 5, 2026.
5. myFICO. “What is a Credit Score?” https://www.myfico.com/credit-education/credit-scores. Accessed March 5, 2026.
6. CNBC. “Here’s the difference between secured and unsecured loans,” https://www.cnbc.com/select/secured-loans-vs-unsecured-loans/. Accessed March 5, 2026.
7. CNBC. “Applying for a personal loan with poor credit? Here’s what you should know,” https://www.cnbc.com/select/applying-for-personal-loan-poor-credit/. Accessed March 5, 2026.
8. Forbes Advisor. “Family Loans: Benefits And Pitfalls Of Borrowing From—Or Lending To—Family,” https://www.forbes.com/advisor/personal-loans/family-loans/. Accessed Accessed March 5, 2026.
9. Experian. “What Is a Student Loan?” https://www.experian.com/blogs/ask-experian/what-is-a-student-loan/. Accessed April 17th, 2026.
10. Federal Student Aid. “Subsidized and Unsubsidized Loans.” https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized. Accessed April 17th, 2026.
11. ConsumerAffairs. “What Is a Pawn Shop Loan?” https://www.consumeraffairs.com/finance/what-is-a-pawn-shop-loan.html. Accessed April 17th, 2026.
12. Consumer Financial Protection Bureau. “What is a payday loan?” https://www.consumerfinance.gov/ask-cfpb/what-is-a-payday-loan-en-1567/ . Accessed March 5, 2026.
13. Consumer Financial Protection Bureau. “What Do I Need to Qualify for a Payday Loan?” https://www.consumerfinance.gov/ask-cfpb/what-do-i-need-to-qualify-for-a-payday-loan-en-1593/. Accessed March 5, 2026.
14. CNBC. “10 questions to ask before you take out a personal loan,” https://www.cnbc.com/select/questions-before-taking-out-personal-loan/. Accessed March 5, 2026.
15. Experian. “Pre-Qualified vs. Pre-Approved” What’s the Difference?” https://www.experian.com/blogs/ask-experian/pre-approved-vs-pre-qualified-whats-the-difference/ .Accessed March 5, 2026.
16. Experian. “How Does a Personal Loan Affect Your Credit Score?” https://www.experian.com/blogs/ask-experian/how-does-a-personal-loan-impact-your-credit/. Accessed March 5, 2026.
17. Experian. “Can a Personal Loan Hurt My Credit Score?” https://www.experian.com/blogs/ask-experian/can-personal-loan-hurt-credit-score/. Accessed March 5, 2026.

About the author

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.