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 lock you out of personal loans entirely. Banks, credit unions, and online lenders all offer loans to people with credit scores below 620, though the interest rates are significantly higher than what borrowers with good credit pay. A loan that costs 6% for someone with a 750 score might cost 28% or more for someone with a 550 score — that difference compounds quickly and makes the loan much more expensive over time.

The real constraint is not whether you can borrow, but whether borrowing makes financial sense for your situation. Before you pursue a personal loan, you need to understand what it will actually cost you and whether the alternative — paying cash, using a credit card, or delaying the purchase — might be better.

Key Takeaways

  • Online lenders and credit unions are more likely to approve bad-credit borrowers than traditional banks, though interest rates will be high.
  • Your interest rate depends on your credit score, income, debt-to-income ratio, and whether you offer collateral or a co-signer.
  • Secured loans (backed by collateral) and loans with a co-signer typically have lower rates than unsecured loans, but put your collateral or co-signer at risk if you miss payments.
  • Comparing offers from multiple lenders takes time but can save you hundreds of dollars in interest over the life of the loan.
  • Some lenders report to credit bureaus, which means on-time payments can gradually improve your score; others do not.

Where to find lenders willing to work with bad credit

Traditional banks rarely approve personal loans for borrowers with credit scores below 650. Credit unions and online lenders are your most realistic options. Credit unions typically offer lower rates than online lenders but require membership; you may be able to join through your employer, a professional association, or by opening a savings account with a small deposit.

Online lenders specialize in bad-credit borrowing and approve applications in days rather than weeks. They do not require a branch visit and often have less stringent credit requirements than banks. The trade-off is that their interest rates are usually higher, and some charge origination fees (a percentage of the loan amount taken upfront) or prepayment penalties (fees if you pay off the loan early).

Before you apply anywhere, check whether the lender reports to the three major credit bureaus — Equifax, Experian, and TransUnion. If they do, on-time payments will gradually improve your credit score. If they do not, the loan helps you borrow but does nothing to rebuild your credit history.

How your interest rate gets set

Lenders use four main factors to decide your rate: your credit score, your income, your debt-to-income ratio (how much you already owe compared to what you earn), and whether you offer collateral or a co-signer. With bad credit, your score alone will push your rate higher, but the other three factors can bring it down.

A higher income and lower debt-to-income ratio signal that you can afford the payments. If you owe $500 a month and earn $3,000 a month, your debt-to-income ratio is about 17%, which is good. If you owe $2,000 a month on the same income, your ratio is 67%, which makes lenders nervous even if your score is decent. Improving your ratio before you apply — by paying down existing debt — can lower your rate.

Collateral (a car, savings account, or other asset you pledge as security) or a co-signer (someone with better credit who signs the loan with you) can also reduce your rate. The catch is real: if you default, the lender can seize the collateral or pursue the co-signer for payment. Only use collateral you can afford to lose, and only ask someone to co-sign if you are certain you can make every payment on time.

Secured loans versus unsecured loans

A secured loan is backed by collateral — usually a car, savings account, or other asset. Because the lender can take the collateral if you do not pay, they are willing to offer lower rates. If you have a car paid off, a secured loan might cost 15% to 22% instead of 25% to 36% for an unsecured loan.

An unsecured loan has no collateral behind it. The lender's only recourse if you default is to sue you or send your debt to a collection agency. That risk is why unsecured rates are higher. For bad-credit borrowers, unsecured personal loans are common, but the rates reflect the lender's risk.

If you choose a secured loan, understand exactly what happens if you miss a payment. Some lenders will work with you on a missed payment; others will move to repossess collateral quickly. Read the loan agreement carefully and ask the lender directly what their policy is.

What happens during the application process

Most online lenders let you check your rate without a hard credit inquiry — a soft pull that does not affect your score. This is worth doing with several lenders to compare offers. Once you find one you want to move forward with, you will submit a full application, which triggers a hard inquiry and temporarily lowers your score by a few points.

The lender will ask for proof of income (recent pay stubs or tax returns), identification, and bank account information. They may also ask about your employment history and existing debts. Be honest; lenders verify income and can see your credit report, so lying will only get you denied or approved for worse terms.

Approval typically takes one to three business days for online lenders. Once approved, the money usually hits your bank account within one to five business days. Credit unions move more slowly — often one to two weeks from application to funding.

Comparing loan offers to find the real cost

Two loans with the same interest rate can cost very different amounts if one has an origination fee and the other does not. The Annual Percentage Rate (APR) is supposed to account for this — it includes the interest rate plus fees, expressed as a yearly cost. Always compare APRs, not just interest rates.

A $5,000 loan at 20% APR over three years costs roughly $1,700 in interest. The same loan at 30% APR costs roughly $2,400. That $700 difference is real money. If you can get approved at 20% instead of 30%, it is worth the effort to shop around.

Use a loan calculator to see the total cost of each offer. Most lenders provide one on their website. Plug in the loan amount, APR, and term (how many months you will pay), and the calculator shows your monthly payment and total interest paid. Comparing three to five offers this way takes an hour and can save you hundreds of dollars.

Red flags to watch for

Some lenders prey on bad-credit borrowers by charging extreme rates, hiding fees, or using aggressive collection tactics. Avoid lenders that demand payment upfront before approving your loan, charge fees that seem excessive (more than 5% to 8% of the loan amount), or pressure you to decide immediately.

Check the lender's reputation on the Better Business Bureau website and read recent reviews on independent sites like Trustpilot or Google. If you see complaints about hidden fees, difficulty canceling, or aggressive collection calls, move on. Legitimate lenders are transparent about costs and give you time to review the agreement.

Be especially cautious of payday loans and title loans, which are marketed as quick cash but charge rates that can exceed 400% APR. These are legal in most states but are designed to trap borrowers in a cycle of debt. A personal loan, even at a high rate, is almost always cheaper.

Building credit while you repay

If the lender reports to credit bureaus, every on-time payment helps your score. After 12 months of perfect payments, your score may improve by 50 to 100 points. After 24 months, the improvement is often even larger. This matters because a better score means lower rates on future loans and credit cards.

Set up automatic payments from your bank account so you never miss a due date. Missing even one payment can drop your score by 100 points or more and trigger late fees. If you are struggling to make a payment, contact the lender before the due date — many will work with you on a temporary adjustment rather than let you default.

Once your score improves, you may be able to refinance the loan at a lower rate. Some lenders allow this after six to twelve months of on-time payments. Refinancing to a lower rate saves you money on the remaining balance and accelerates your credit recovery.

Frequently Asked Questions

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

Most online lenders will work with scores as low as 550 to 600. Credit unions often go lower. Banks typically require 650 or higher. Your score is only one factor — income and debt-to-income ratio matter too. Some lenders approve borrowers with scores below 550 if income is strong and debt is low.

Can I get a personal loan without a credit check?

No legitimate lender skips a credit check entirely. Some offer soft inquiries that do not affect your score, but they still verify your identity and income. Lenders that claim to offer loans with no credit check are usually scams or payday lenders charging predatory rates.

Will applying for a personal loan hurt my credit score?

A hard inquiry (which happens when you submit a full application) typically lowers your score by a few points and the impact fades within a few months. Multiple applications in a short time can hurt more, so try to apply within a two-week window if you are shopping around — credit bureaus treat multiple inquiries for the same type of loan as a single inquiry.

What if I cannot afford the monthly payment?

Contact the lender before you miss a payment. Many offer deferment (skipping a payment or two) or forbearance (temporarily lowering payments). These options usually extend your loan term and cost more in interest, but they are better than defaulting. Some lenders also offer hardship programs if your income drops unexpectedly.

Is a co-signer worth it if it lowers my rate?

A lower rate saves you money, but only if you make every payment on time. If you default, the co-signer is legally responsible for the full amount. Only ask someone to co-sign if you are confident in your ability to pay and if you have discussed the risk with them honestly.