One day you may feel extremely vulnerable because of a sheer lack of money. Many things may happen: outstanding medical or utility bills, somebody’s marriage, birth or death, urgent car or home repair, or even something absolutely unavoidable, like Christmas. Situations differ, but you may be able to take them all under control with some extra cash. And here come personal loans — the least costly way to borrow money and the simplest way to repay the debt successfully.
But what if the world is even less perfect and you are even more vulnerable than you thought? In other words, what if you urgently need money but your credit is bad?
Subprime lenders and loan types they offer
Bad credit changes your quest for money dramatically. There is always a chance that you’ll get less money than you are asking for. Or you may get a loan at a really high interest rate. Or your application may be rejected. To avoid these situations, make sure you understand which loan type and from which lender is the best for you.
Best subprime lenders
Let’s start with the trickiest thing for anyone with poor credit — how to find a trustworthy lender. This will help you save money on hidden fees and super high interest and make the cost of your loan predictable. That’s very important, since unpredictable debt is very difficult to pay off.
So “best” loan companies for bad credit means “honest” loan companies. The more transparent the loan terms are, the more trustworthy the lender is. Below we’ve listed our favorite picks for various types of bad credit personal loans, including installment loans for bad credit, title loans and even payday-style loans.
Peer-to-peer bad credit loans
How it works
Peer-to-peer lending platforms provide you with access to their networks of individual investors. You normally have to fill out an application form and then wait for loan offers from individuals who consider you as a more or less trustworthy borrower. If you like any of those offers, you can accept it.
However, remember that the investor may only partially fund your loan request. And it may take up to several weeks before you receive your money. In most cases after getting a loan, you’ll have to pay a fee for using the peer service.
One of the best peer-to-peer online platforms is Peerform. It provides transparent terms and maintains quite liberal credit standards. Peerform has its own grading system for evaluating potential borrowers. And depending on the received grade, you get offers with higher or lower costs.
Unsecured bad credit loans
How it works
There are a few lending platforms working with subprime credit. Unlike peer-to-peer services, they give you access not to the funds of individual investors, but to the loans themselves. To you, as a borrower, that means that once qualified, you can get the borrowed money transferred to your bank account as fast as the next business day.
However, remember that unsecured loans may be suitable for borrowers with an average credit score: 580 and higher.
People with poor credit may hardly qualify for such loans. And even if they qualify, they may get a smaller loan amount than they asked for and at a really high interest rate — up to 36%. In this situation, it would be better to consider other options, like auto-secured loans or similar.
Avant is one of the best online lenders offering unsecured loans. Quick and safe pre-qualification, fast approval, and today-to-tomorrow money transfer. You won’t be surprised with any hidden fees or interest increases. It’s a fast and transparent service.
Secured loans for bad credit
How it works
Unlike secured credit cards, secured loans don’t require a cash deposit. Instead, you can use the title of your car as collateral. In return, you can borrow more money at a lower rate for a longer period than would be possible for an unsecured loan with your credit. However, the amount of your loan depends on the value of your car.
Please bear in mind that you can drive your car during the entire loan repayment term. But the lender will keep your vehicle title until you pay off your debt.
With some lenders, besides the title of a car, you may also have to put up your savings account or other asset as security.
One Main Financial is a good option for subprime borrowers. You can apply online or visit one of 1,600 branches across 44 states. The lender doesn’t set any minimum income or credit score requirements but does check your credit (and it may be a hard pull). If you’re approved, you may receive funds on that very day.
The company offers both secured and unsecured loans, depending on your creditworthiness. But regardless of the credit score you have, it’s better to ask for a secured loan, since it has lower rates. You can use your car title as collateral for your loan.
Really bad credit loans
How it works
Let’s be honest: good loans are not available for bad credit. What you can expect with a truly low credit score is small loan amounts (up to $1,000), high fees and astronomical APRs. These are called payday-style loans.
Why would you like to get one if the conditions are that poor? It’s simple: emergencies happen to all of us. So let’s see what it may look like. You borrow $500 for 14 days. In two weeks, you have to repay the loan amount and, let’s say, $50 in fees and interest. In other words, it costs you $50 to get fast cash in an emergency, regardless of your credit score and other financial circumstances.
In general, $50 is not that much. But the APR is calculated based on the loan amount (which is small here), the loan term (very short), and interest rates and fees (which are $50 for $500 for two weeks). Since APR stands for annual percentage rate, we have to extend the loan term to one year for our calculations, and that’s why we get that gigantic APR of 260%.
Consider BadCreditLoans for searching for loans with poor credit. BadCreditLoans is not a lender itself, but rather a service giving you access to its network of trustworthy lenders.
There is normally no credit check. And all you need to do is complete an online application (that’s for free) and wait for offers. Sometimes, you get multiple offers and can even choose among them. It may take as little as 5 minutes to get pre-approved and only one day to get money transferred to your checking account. In other situations, you may receive no loan offers at all. So no guarantees here.
In any case remember, you have no obligations to accept any offers unless you consider them suitable for you.
Loan comparison table
580 and higher
Origination fee varies from 1.50% to 4.75%
From $2,000 and up to $35,000
May vary from 9.95% to 35.99%
Unsecured personal loans for people with bad credit
No minimum credit score requirement
Varies by state
Typically from $1,500 and up to $10,000. Can be higher for a better credit score
May vary from 17.59% to 35.99%. Starts from 9.99% for auto-secured loans
Offers mostly secured personal loans, but unsecured small loans for bad credit are also available
600 and higher
Origination fees vary from 1% to 5% for a three-year personal loan and consolidation loan. The origination fee for a five-year consolidation loan is 5%.
From $4,000 and up to $25,000
May vary from 5.99% and up to 29.99% depending on the loan purpose and your credit score
Peer-to-peer loans only
Bad Credit Loans
Low credit score may qualify
Up to $1,000
May vary dramatically depending on your credit score. Starts from 230%.
Mostly payday-style loans
If your lack of money is caused by an emergency and in a couple of weeks you’re going to be fine, consider payday loans for bad credit. In other situations, these short-term, costly loans can be a kind of trap, so don’t use them to postpone dealing with your financial difficulties. They are a quick funding tool, and in the same way, they should be paid off — as soon as possible.
If you are looking for a long-term loan with modest costs, then consider secured loans and peer loans for bad credit. Both of them offer decent terms for subprime borrowers. But peer-to-peer loans may take a few weeks to be transferred to your bank account. And secured loans are a good option only if you’re ready to put up your assets as collateral.
If your credit score is average (580 and higher), you may qualify for a long-term, unsecured personal loan for bad credit with monthly payments at decent interest rates. Rates maybe even lower if you have a few co-signers to back your loan.
And finally, remember that truly good loans are available for truly good credit. So if there is any opportunity to hold off your loan application for at least half a year, do it. And use that time to improve your credit. Here debt consolidation or a secured credit card may become your quick credit-repairing solution.
Shopping for a loan
Once you’ve decided what type of loan suits your situation best, you should consider many similar offers to find the best lending conditions. So devote enough time to comparing the total cost of borrowing money from different lenders and learn about the main traps.
How much bad credit costs you
When looking for a loan for bad credit, it’s not only loan accessibility that matters but also loan costs. They may be much higher than those for good credit and include both interest rates and some administration fees.
For example, most lenders charge an origination fee for considering your loan application. It normally varies from 1% to 6% of your loan amount. If you borrow $5,000 with good credit, you’ll pay only $50 as an origination fee. But if your credit is bad, it may cost you as much as $300. That’s quite an amount, and you shouldn’t ignore this while shopping for a loan.
The main difficulty here is to understand which loan has lower costs — that one charging a lower origination fee but higher interest or vice versa.
How to compare loan terms
To compare loan options with varying interest rates and fees, use APR (annual percentage rate). APR shows how much borrowing money will cost you in total, since it includes interest rates and all the obligatory fees and depends on the loan term.
By comparing APRs of loans with different fees and rates, you compare apples to apples and can make a sensible decision.
Some lenders specify APR or its range for their offers. However, this advertised APR may be deceiving, since it may not include some unavoidable fees. And taking into account that you’re applying for loans with bad credit, such fees may be quite high and do deserve your attention. Look at the chart below to see how much such lenders’ tricks may cost you.
To make sure that you compare the same terms while choosing your loan, use our Personal loan APR calculator. It allows you to add any number of fees (such as origination or closing fees) charged in dollars or in percentage to your loan amount. In this case, the calculated APR will show the total cost of borrowing money from this particular lender.
Note! If you want to calculate APRs for several loans to compare their costs, specify the same loan term — it really matters.
How to avoid subprime loan traps
APR is not the only thing to consider while shopping for a loan for bad credit. Subprime loan offers may hold some other pitfalls for the unwary:
- Origination fees. Many loans have an origination fee. This helps lenders to make profit even if you repay the loan on the next day after borrowing. An origination fee is not refundable, and you cannot avoid these expenses. But the trick is that different lenders collect this fee differently. They may deduct it from the loan amount and you get less money than you expect. Or they may add it to your loan amount and interest will be accrued on a higher amount than you expect. Make sure you know how your chosen lender charges this fee.
- Early payment penalties. Some lenders charge fees if you pay off your loan debt before the term ends, but others don’t. So make sure that you know about it before signing the agreement.
- Pre-compute interest. The best strategy with pre-compute interest offers is to avoid them. While normal loans accumulate interest on the remaining balance, pre-compute loans apply an interest rate to the entire loan amount for the entire loan term, and then add the interest amount to you loan amount. So your balance is the total sum of your principal and overall interest. That helps lenders earn more profit in case you pay off your loan early.
You should agree to pre-compute interest only in one situation — there is no chance at all that you’ll repay your loan before its term ends.
- Insurance sold with a loan. Your lender may want to sell you either life insurance or unemployment insurance to secure the debt repayment process. However, in both cases, it’s better to refuse.
- If you do need life insurance (for the sake of your family, for example), you should shop for it separately from your loan and consider many other factors to find the best option.
- Unemployment insurance offer is even more useless. Yes, unlike life insurance, you cannot buy this kind of insurance separately. But consider its costs. If you’re not going to lose your job in the next six months, it’s better to save some money on a monthly basis to be able to repay your debt in the future instead of buying this insurance.
Generally, these are the ways lenders try to prevent losing their profit in case of your non-payment or early repayment of the loan. But it’s not your job to secure lenders’ losses. Your goal is to borrow money at the lowest cost possible. So go through the fine print thoroughly, ask questions to potential lenders and be alert for possible pitfalls.
Applying for a loan with bad credit
How online lenders gauge you as a borrower
Unlike banks, online lenders are considered to be much more flexible and “open-minded.” (That is especially true for online loans for bad credit.) Such companies make their lending decisions based on various factors, not just your credit score. Thus, they may ask you about:
- your income and debt;
- employment history and employment opportunities;
- your current and previous addresses;
- some other relevant information that may help gauge your creditworthiness.
All these factors may play to your advantage and increase your chances of getting approved for a loan. But they don’t save your credit report from credit inquiry records.
Yes, unfortunately, many online lenders still request information from credit bureaus to check your credit history once you’ve filled out a pre-qualification form. Taking into account your bad credit and possible difficulties with approval, imagine how many credit check records may appear on your credit report and how much they may affect your credit score.
What credit check means what to your credit
You may remember that there are two types of credit inquiries: so-called soft pulls and hard pulls. They provide the same information, but their impact on your credit differs:
- Soft pulls are considered to be “background” checks. They normally take place when your potential employer wants to gauge your responsibility or lenders pre-qualify you for their offers. When you check your credit score, it’s also a soft pull. Credit bureaus add such inquiries to your credit report but only you can see them.
- Hard pulls are direct inquiries from banks and lenders made during their final decision-making process. This means that you’ve chosen the credit product you need and did your best to get it. Multiple hard inquiries may mean that you failed to get money on the first try because of unknown reasons, and they make you look less creditworthy. Each hard inquiry record stays on your credit report for 12 months and may impact your credit score.
How to apply for a loan with bad credit safely
Depending on the loan type, your application process may vary. But in general it looks like this:
- You register at the lender’s website.
- You fill out a pre-qualification form.
- In a few minutes, you get pre-approval and may see available offers (or you get rejected and should look for another lender).
- You compare offers and accept the most suitable one.
The credit check may happen twice: during pre-qualification and when you apply for the particular offer you’ve chosen.
The good news is that in most cases, online lenders make a soft pull during pre-qualification and that’s enough for them. It’s safe.
But some online lenders seem not to be able to see the difference between soft pulls and hard pulls. They may claim that they make a soft pull during pre-qualification, but later you’ll see a hard pull on your credit report.
So if you have any opportunity to contact the lender and ask about the type of the credit inquiry they make, do so.
Still, a hard pull is not that scary. All you need to know to keep it under control is two things:
- Any hard pull requires your authorization. If you didn’t authorize a hard inquiry, you may contact a credit bureau and ask them to remove the record about it from your report.
- You can control the impression your hard pulls make on your credibility. When you apply for loans many times but within a certain timeframe, all the hard pulls are grouped and considered as one. That will work for all your loan requests made within 30 days (for the newest FICO version, it’s 45 days) and within 14 days for the Vantage scoring model. That’s not magic but a strategy making your multiple applications look not as failures but as rate shopping.
So, even if you have to apply for a loan with bad credit several times in a row, it may be harmless to your credit score. All you need to do is act in a smart way and keep your credit management under control.
The bottom line
Good bad credit loans exist. And they are different for each situation. It may be the cheapest loan or the fastest one. Or simply the loan that would offer you a particular amount — large or small. Situations differ, and so do loans. Make sure you know which loan type suits you best, find a trustworthy lender, compare available options, watch out for possible pitfalls, and once that’s all set — apply and get approved on the first try.