Top 3 Personal Loans for Bad Credit with Monthly Payments

Top 3 Personal Loans for Bad Credit with Monthly Payments
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Brittney Mayer
By: Brittney Mayer
Posted: September 13, 2017
BadCredit.org's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

Although a convenient and easy way to make purchases, your favorite credit card is probably a bad place to keep debt that you need to carry for any extended period of time. That’s because an average credit card charges around 17% interest — and your typical subprime card can have an APR over 25%. That’s not to mention the vicious cycle of inadequate minimum payments that can cause your interest to outpace your debt.

No, when you need to finance a long-term purchase, often a better option is to take out a personal installment loan. Unlike credit cards, which can keep heaping more interest on top of your growing pile of debt, you’ll know your interest fees right up front with a personal installment loan. You also won’t be required to pay back your loan in a giant lump sum, as you would with a short-term loan.

Additionally, responsible use of an installment loan can actually improve your credit score. This is because a full 10% of your FICO credit score calculation is based on your credit mix (the type of credit accounts you carry). Creditors like to see that you can handle different types of credit, including revolving and installment-based debts.

Top Providers | Low Payments vs. Shorter Loan

Best Personal Installment Loan Providers

As with any financial product, you’ll want to compare personal installment loan offers to find the best rates and terms — especially if you’re dealing with poor credit. Although you might assume that having bad credit means you should take the first offer that comes along, doing so could cost you hundreds in unnecessary interest fees over the life of your loan.

One of the simplest ways to compare multiple offers at once is to use an online lending network. By connecting borrowers with thousands of lenders across the country, online lending networks, including our top-rated picks, allow you to receive multiple quotes by filling out a single application.

   
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Loan Amount Interest Rate Loan Term Loan Example
$1,000 to $10,000 5.99% - 35.99% 3 to 60 Months

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An important consideration to keep in mind when comparing offers is that the amount of money you wish to borrow may also dictate which lenders you can use. Most lenders will have a minimum loan size (typically at least $500, though it could be $2,000 or more), as well as maximum loan caps of anywhere from $5,000 up to $35,000.

Additionally, each individual lender will likely have its own credit score and income requirements. For example, while a general rule of thumb is that you’ll need to have a credit score of 580 or higher to qualify for a personal installment loan, specific lenders may have higher — or, less frequently, lower — credit score requirements.

At the same time, income requirements tend to vary based on both the size of the loan as well as your credit score. Applicants who are seeking larger loans or who have particularly risky credit profiles may need to meet higher income requirements.

Those whose credit or income precludes them from qualifying for a personal loan may have better luck when applying with an eligible co-signer. To qualify, co-signers must usually be over the age of 21 and have good to excellent credit. The decision to become a co-signer should not be taken lightly, as you could be held responsible for repaying the loan should the primary borrower become unable to do so.

Real Cost of Lower Monthly Payments vs. Shorter Loan

When it comes to comparing personal loan quotes, it can be easy to become interest-rate obsessed or to develop a case of monthly payment tunnel vision. Afflicted borrowers tend to focus on a single variable affecting their loan, ignoring other important loan factors that could end up costing them big.

Instead of blindly selecting the offer with the lowest APR or smallest monthly payment, you should investigate each facet of your loan’s terms. In some cases, the loan that appears to be the best deal may end up being the best deal for the lender, not the best deal for you.

For the most part, your monthly payment will actually depend on your APR and loan length. That said, your interest rate is heavily reliant upon your credit score, so you’ll likely have the most control over the size of your monthly payments by varying the length of your loan. You can use an online loan calculator or mobile calculator application to crunch the numbers.

Of course, the length of your loan can have almost as much — if not more — of an impact on the total cost of your loan as the interest rate you’re charged. Why? Because most loans calculate your interest on a daily basis. This means that the more days (weeks, months, years) you take to pay down your balance, the more interest you pay over the life of your loan.

Chart Showing Interest Fees for $10,000 Loan

For example, consider a hypothetical borrower, Irma, who takes out a $10,000 loan with an APR of 15%. If Irma chooses a loan with a length of three years (36 months), her monthly payment will be $347, and she’ll have paid the lender a total of $2,480 in interest fees.

On the other hand, if Irma were to select a loan with the maximum length of six years (72 months), she could lower her monthly payment to $212. However, while Irma will pay $135 less every month with the longer loan, she’ll wind up giving the lender more than $5,220 in interest payments over the life of the loan — more than twice the total interest she would pay with the shorter loan.

Ideally, you’ll want to find the right balance between the interest rate, the size of the monthly payment, and the total length of the loan. Although paying an extra $2,000 in interest can be a hard pill to swallow, an affordable loan will always be better than a cheap one in the end.

In other words, if the lower monthly payments allow you the ability to repay your debt as agreed, it can be worth the additional cost. Even a single missed payment can cause significant damage to your credit score, and defaulting on a loan can tank your credit for years. Since the interest rates you’re charged for any credit product will depend on your credit score, maintaining good credit can save you money in the long term.

Always Borrow Responsibly

At the end of the day, few financial products better fit the bill than a personal installment loan when it comes to financing purchases you need to repay over months or years. Not only will you pay less interest than with credit cards, but you’ll have more affordable payments than with short-term loans.

You may also enjoy a credit boost from showing future creditors that you can handle installment-based credit — assuming you use that credit responsibly. Personal loans won’t do you, or your credit, much good if you don’t maintain your loan in good standing, which includes making your full payment as agreed each month.