Personal loans with bad credit exist, but they cost more and come with stricter terms
You can borrow money with a low credit score. Banks and credit unions rarely do it, but online lenders, credit unions with membership-based lending, and some finance companies offer personal loans to people with scores below 620. The tradeoff is real: interest rates run 25% to 36% or higher, compared to 6% to 12% for borrowers with good credit. You will also face smaller loan amounts, shorter repayment periods, and fees that traditional lenders do not charge.
The lenders willing to work with bad credit fall into three categories. Online lenders are the fastest route — many make decisions in hours and deposit funds within one to three business days. Credit unionsFinance companies (sometimes called installment lenders) are the most expensive option but the easiest to get approved for, and some work with people who have no credit history at all.
Key Takeaways
- Online lenders are fastest and most accessible for bad credit, but charge 25% to 36% interest or more, compared to 6% to 12% for good credit.
- Credit unions with second-chance programs charge less than online lenders but require membership and take one to two weeks to process.
- Finance companies approve almost anyone but are the most expensive option and often require collateral or a co-signer.
- Before you borrow, check what the total cost will be — a $5,000 loan at 35% interest costs roughly $4,000 more than the same loan at 10% interest.
What lenders actually check when your credit is bad
A low credit score does not mean a lender will automatically reject you. What they check instead is whether you have money coming in and whether you have defaulted on recent debts. Most online lenders look at your bank statements for the last two to three months to confirm you have regular income — a job, benefits, or a pension. They want to see that your account does not go to zero and that you can cover the monthly payment.
Lenders also check whether you have unpaid collections, recent charge-offs, or active court judgments. A bankruptcy from five years ago hurts less than a debt sent to collections last month. Some lenders will work with you if the bad credit is old, even if your score is low. Others focus only on recent payment history. Online lenders typically state their minimum credit score requirement upfront, though some do not require a minimum at all — they look at income and bank activity instead.
A co-signer (someone with better credit who agrees to repay if you do not) can lower your interest rate by 5% to 10 percentage points and sometimes unlock loans you could not get alone. The co-signer's credit score and income both matter, and they are legally responsible for the debt if you stop paying.
Online lenders versus credit unions versus finance companies
| Lender Type | Interest Rate Range | Time to Funding | Loan Amount | What They Require |
|---|---|---|---|---|
| Online lender | 25%–36%+ per year | 1–3 business days | $1,000–$50,000 | Bank statements, proof of income, ID |
| Credit union (second-chance program) | 18%–28% per year | 7–14 business days | $500–$25,000 | Membership, bank statements, proof of income |
| Finance company | 30%–40%+ per year | 1–5 business days | $300–$10,000 | ID, proof of income, often collateral or co-signer |
Online lenders are the fastest and most common choice for bad credit. They make decisions based on bank statements and income, not credit score alone. Approval takes hours to one business day, and money lands in your account within one to three business days. The downside is the cost — rates are high, and some charge origination fees (1% to 6% of the loan amount) or prepayment penalties if you pay early.
Credit unions with second-chance lending programs charge less than online lenders but require you to be a member first. Some credit unions let you open a membership account on the same day you apply for the loan. Processing takes one to two weeks. You will need to provide bank statements and proof of income, just as with an online lender. If you are already a credit union member, this is usually your cheapest option.
Finance companies are the easiest to get approved for but the most expensive. They often require collateral (a car, savings account, or other asset) or a co-signer. Some will lend to people with no credit history at all. Interest rates can exceed 40% per year, and fees add up quickly. Use this route only if online lenders and credit unions have turned you down.
How to calculate the real cost before you borrow
The interest rate is not the only cost. Before you commit to any loan, calculate the total amount you will pay back. A $5,000 loan at 35% interest over three years costs you roughly $9,000 total — you pay $4,000 in interest alone. The same $5,000 at 10% interest costs about $5,800 total.
Ask the lender for the Annual Percentage Rate (APR), which includes interest and fees. Compare APRs across lenders, not just interest rates. A lender advertising "25% interest" might charge an origination fee that pushes the true APR to 28% or higher. Most lenders provide an estimate before you formally apply, and that estimate should include the APR, the monthly payment, and the total amount you will repay.
Use an online loan calculator to see how different loan amounts and repayment periods change your monthly payment and total cost. A longer repayment period (five years instead of three) lowers your monthly payment but increases the total interest you pay. A shorter period costs more per month but saves you money overall.
Documents and information you will need to provide
Most lenders ask for the same basic information. Have your Social Security number, a valid ID (driver's license or passport), and proof of income ready. Proof of income can be a recent pay stub, tax return, bank statements showing regular deposits, or a benefits statement. If you are self-employed, lenders usually want two years of tax returns or recent bank statements showing consistent income.
You will also need to provide your bank account information so the lender can deposit the money and set up automatic payments. Some lenders ask for permission to check your bank statements directly through a service like Plaid, which connects to your bank account securely. Others ask you to upload statements yourself.
If you have a co-signer, they will need to provide the same documents — ID, proof of income, and authorization for a credit check. The co-signer's credit score and income are both verified, and they will be asked to sign a document stating they agree to repay the loan if you do not.
Red flags and predatory lending practices to avoid
Some lenders target people with bad credit by charging rates so high they become impossible to repay. Watch for these warning signs: lenders who may provide approval before checking your finances, lenders who ask for payment upfront (legitimate lenders deduct fees from the loan amount or add them to your first payment), and lenders who pressure you to borrow more than you need.
Payday loans and title loans are not personal loans — they are short-term, high-cost borrowing that often traps people in a cycle of debt. Payday loans charge 400% APR or higher and are due in full in two weeks. Title loans let you borrow against your car but put your vehicle at risk if you cannot repay. Avoid both if you can.
Check whether a lender is licensed in your state. Most states regulate finance companies and require them to be licensed. You can verify a lender's license through your state's Department of Financial Services or similar agency. If a lender is not licensed and is not a bank or credit union, they may be operating illegally.
What happens after you are approved
Once approved, you will receive a loan agreement that spells out the interest rate, monthly payment, repayment period, and any fees. Read it carefully before signing. The agreement should state whether there are prepayment penalties (fees for paying off the loan early) and what happens if you miss a payment.
Money typically lands in your bank account within one to three business days for online lenders, and within one to two weeks for credit unions. Your first payment is usually due 30 days after funding, though some lenders require the first payment sooner. Set up automatic payments if the lender offers it — missing a payment damages your credit further and may trigger late fees.
If you cannot make a payment, contact the lender immediately. Some lenders offer hardship programs that let you skip a payment or extend the loan term, though this usually costs more in interest. Do not ignore the debt — the longer you go without paying, the worse the damage to your credit and the higher the risk of being sued.
Frequently Asked Questions
Will taking out a personal loan hurt my credit score?
Yes, initially. A hard credit inquiry (which the lender does to check your credit) lowers your score by a few points. Once you have the loan, your score may drop further because you now have more debt. However, making on-time payments rebuilds your score over time. After six to twelve months of consistent payments, your score usually starts to improve.
Can I get a personal loan if I have no income?
Most lenders require proof of income — a job, benefits, a pension, or regular deposits to your bank account. If you have no income at all, you will likely need a co-signer with income. Some credit unions offer small loans to members without income if they have savings or other assets, but this is rare.
What is the difference between a personal loan and a payday loan?
A personal loan is repaid over months or years with a fixed monthly payment. A payday loan is due in full in two weeks and charges 400% APR or higher. Personal loans are cheaper and safer, though still expensive with bad credit. Avoid payday loans unless it is a true emergency and you are certain you can repay in full on time.
Can I get a personal loan if I am in bankruptcy?
It depends on the type of bankruptcy. If you are currently in Chapter 13 bankruptcy, you need court permission to take on new debt. If your bankruptcy was discharged (finished) more than one to two years ago, some online lenders and credit unions will work with you, though interest rates will be higher. Ask lenders directly about their bankruptcy policy.
What should I do if a lender denies me?
Ask why you were denied — lenders must tell you if you ask. Common reasons are insufficient income, too much existing debt, or recent late payments. If the reason is recent late payments, wait a few months and try again. If it is income, consider a co-signer. If it is too much debt, focus on paying down existing balances before applying elsewhere.