Yes, you can get a personal loan with bad credit, but you will pay more for it and have fewer lenders to choose from

Bad credit does not automatically disqualify you from borrowing. Lenders exist who specifically work with borrowers whose credit scores are below 620 — the threshold most traditional banks use. The trade-off is real: interest rates will be higher, loan amounts smaller, and repayment terms shorter than what someone with good credit would receive for the same loan.

The lenders willing to work with bad credit fall into three categories: credit unions, online lenders, and banks that have subprime lending programs. Each has different requirements and costs. Your job is to understand what each type actually offers before you commit to anything.

Key Takeaways

  • Credit unions often have lower rates than online lenders for bad-credit borrowers, but you must be a member and may need to have an account there for a waiting period.
  • Online lenders approve faster than banks or credit unions but typically charge interest rates between 25% and 36% for bad-credit loans.
  • Your credit score is not the only thing lenders look at — income, employment history, and existing debt all affect whether you are approved and what rate you receive.
  • A co-signer with good credit can lower your interest rate significantly, but they become legally responsible if you do not repay.
  • Secured loans (backed by collateral like a car or savings account) carry lower rates than unsecured loans, but you risk losing the collateral if you default.

How lenders evaluate bad-credit borrowers differently

When your credit score is low, lenders cannot rely on your payment history to predict whether you will repay. They shift focus to other factors. Income matters more — lenders want to see that you earn enough to cover the loan payment plus your other bills. Employment stability matters too; a job you have held for two years looks better than one you started last month.

Debt-to-income ratio becomes critical. This is the percentage of your monthly income that goes to debt payments. If you already owe $1,500 a month and earn $3,000, your ratio is 50%. Most lenders want to see this below 40% before they will approve a new loan. The lower your ratio, the better your chances and the lower your rate.

Some lenders also look at alternative data — whether you pay your utilities and phone bills on time, or whether you have a history of overdrafts at your bank. This matters more when your credit file is thin or damaged.

Credit unions versus online lenders: the real difference

Credit unions typically offer the lowest rates for bad-credit borrowers, often between 9% and 18%. The catch is membership. You must join the credit union first, and many require you to have a savings account open for 30 to 90 days before you can borrow. If you need money immediately, this waiting period is a problem.

Online lenders skip the waiting period. You can apply and receive money within days. Interest rates run higher — usually 25% to 36% for bad-credit loans — but the speed and ease of approval make them attractive when you need cash quickly. Online lenders also tend to have looser income requirements and may work with you even if you are self-employed or have irregular income.

Banks with subprime programs fall between the two. Rates are typically 15% to 25%, approval takes one to two weeks, and you need to open an account. The advantage is that if you improve your credit while the loan is active, some banks will refinance you into a better rate.

What a co-signer does and what it costs them

A co-signer is someone with good credit who signs the loan alongside you. They do not receive any money, but they promise to repay the loan if you do not. Lenders use the co-signer's credit score and income to make the approval decision, which usually results in a lower interest rate for you — sometimes 5 to 10 percentage points lower.

The risk to the co-signer is real and permanent. If you miss a payment, the lender reports it on both your credit report and theirs. If you default, the lender can sue the co-signer for the full amount. The loan also appears on the co-signer's credit report as their debt, which can affect their own ability to borrow. Many co-signers do not understand this until it is too late.

Before asking someone to co-sign, be honest about your ability to repay. If you cannot afford the payment, a co-signer will not change that — it will only damage someone else's credit when you miss it.

Secured loans: trading collateral for a lower rate

A secured personal loan is backed by collateral — usually a car, savings account, or certificate of deposit. Because the lender can seize the collateral if you do not pay, they charge lower rates. Secured bad-credit loans often run 15% to 25%, compared to 25% to 36% for unsecured ones.

The trade-off is obvious: if you default, you lose the collateral. If you use your car as security and stop paying, the lender can repossess it. If you pledge your savings account, they can take the money directly. This is why secured loans make sense only if you are confident you can repay and if losing the collateral would not leave you in crisis.

Some credit unions offer secured loans where you borrow against your own savings account — you deposit $1,000 and borrow $1,000 against it. This is a safe way to build credit because you cannot lose more than you put in, and the lender has no risk.

Loan amounts and terms you can actually expect

Bad-credit lenders typically cap loan amounts between $1,000 and $10,000, though some online lenders go higher. Credit unions may lend more if you have been a member longer or have a savings account with them. Banks with subprime programs often cap at $5,000 to $15,000.

Repayment terms are usually shorter — 24 to 60 months rather than the 60 to 84 months available to borrowers with good credit. A shorter term means higher monthly payments but less total interest paid over the life of the loan. Some online lenders offer terms as short as 12 months, which can be difficult to afford but gets you out of debt faster.

Before you accept any offer, calculate the total cost. A $5,000 loan at 30% over 36 months costs you about $2,400 in interest. The same loan at 15% costs about $1,200. That difference matters, which is why shopping between lenders is worth the time.

What happens to your credit score when you borrow

Taking out a personal loan will temporarily lower your credit score — typically by 5 to 10 points — because the lender runs a hard inquiry on your credit report and you are adding a new account. This dip is normal and temporary.

What matters more is what happens after. If you make every payment on time, your score will begin to recover within a few months and improve steadily over the life of the loan. Payment history is 35% of your credit score, so a consistent track record of on-time payments rebuilds credit faster than anything else.

If you miss payments, your score will drop significantly and stay damaged for years. This is why borrowing only what you can actually afford to repay is not just practical — it is essential to your financial recovery.

Red flags to watch for when comparing offers

Some lenders prey on people with bad credit by hiding fees or misrepresenting rates. Before you sign, make sure you understand the full cost. The lender must provide a Truth in Lending disclosure that shows the annual percentage rate (APR), the finance charge in dollars, and the total amount you will repay. Compare the APR across lenders, not just the interest rate — APR includes fees and gives you the true cost.

Watch for prepayment penalties, which charge you a fee if you pay off the loan early. These are less common now, but some lenders still use them. If you plan to pay the loan off faster than the term requires, make sure there is no penalty for doing so.

Be wary of lenders who may provide approval before looking at your finances, who pressure you to decide immediately, or who ask for payment upfront. Legitimate lenders do not charge fees before they lend you money.

Frequently Asked Questions

What credit score do I need to get a personal loan?

Most traditional banks require a score of 620 or higher. Credit unions and online lenders work with scores below 600, and some have no minimum score at all. Your actual approval depends on income, debt, and employment history as much as your score.

Can I get a personal loan if I have no credit history?

Yes, but it is harder. No credit history is different from bad credit — lenders have no data to evaluate you on. Credit unions are often more willing to work with you if you become a member first. Online lenders may approve you based on income and bank account history. A co-signer with established credit makes approval much easier.

How long does it take to get approved for a bad-credit personal loan?

Online lenders typically approve within 24 hours and fund within one to three business days. Credit unions take one to two weeks. Banks take two to four weeks. Speed depends on how complete your application is and whether the lender needs to verify your income.

Will getting a personal loan hurt my credit score?

Yes, temporarily. The hard inquiry and new account will lower your score by a few points initially. But if you make on-time payments, your score will recover and improve within months. Missing payments will damage it far more than taking out the loan in the first place.

What is the difference between APR and interest rate?

Interest rate is the percentage of the loan amount charged as interest. APR includes the interest rate plus all fees, giving you the true annual cost. APR is always higher than the interest rate and is what you should compare between lenders.