Written by: Eric Bank
Edited by: Jon McDonald
Reviewed by: Ashley Fricker
Consumers with bad credit need to know where to turn when they require a loan. The ideal lender welcomes borrowers with subprime credit, provides an easy loan process, and delivers your funds quickly.
We’ve identified five places that fit the bill. As you’ll see, even though the loan details differ, each lender routinely works with borrowers in every credit category. Keep reading to find the best bad credit loan that best fits your situation.
1. Online Lending Networks
Online lending networks operate by finding one or more direct lenders willing to work with subprime borrowers. These three loan-matching networks can help you line up a lender and receive your money on the next business day.
- Short-term loans up to $5,000
- Online marketplace of lenders
- Funds available in as few as 24 hours
- Simple online form takes less than 5 minutes
- Trusted by more than 2 million customers
- See official site, terms, and details.
| Loan Amount | Interest Rate | Loan Term | Loan Example |
|---|---|---|---|
| Up to $5,000 | Varies | Varies | See representative example |
- Personal loans from $500 to $35,000
- All credit types are considered and welcome
- Simple, no credit impact form
- Helping consumers since 2001
- 4.7 out of 5 Trustpilot rating with 2,000+ reviews!
- See official site, terms, and details.
| Loan Amount | Interest Rate | Loan Term | Loan Example |
|---|---|---|---|
| $500 to $35,000 | 5.99% – 35.99% | 60 Days to 72 Months | See representative example |
- Loans from $500 to $10,000
- Receive a loan decision in minutes
- Get funds directly to your bank account
- Use the loan for any purpose
- See official site, terms, and details.
| Loan Amount | Interest Rate | Loan Term | Loan Example |
|---|---|---|---|
| $500 to $10,000 | 5.99% – 35.99% | 3 to 72 Months | See representative example |
When you contact one of these online networks, you can request a payday or personal loan by submitting a form. The loan-matching service will collect your contact information and data about your income, employment, housing costs, and debts.
To prequalify for an online loan, you must satisfy certain requirements, including the following:
- Be at least 18 years old
- Be a US citizen or permanent resident
- Collect a specified minimum income each month, either as wages or government benefits
- Have a bank or credit union account in your name
- Have valid email and phone accounts
- Some require a minimum credit score
A loan-matching service does not perform a hard credit check (although the direct provider of a bad credit personal loan typically does). Assuming you successfully prequalify, the service links you to multiple direct lenders or transfers you to a lender’s website.
When a loan-matching service receives multiple responses to your loan request, it organizes and displays the information to help you decide which offer (or offers) to pursue. You should compare all of the elements of each loan offer, including the amount you can borrow, the interest rate, and the repayment period.
Depending on your circumstances and the lender, you may receive a loan offer ranging from a few hundred dollars to many thousands. Pay close attention to the APRs and other terms critical to your decision.
For example, if you are shopping for the best personal loan, you may be more sensitive to your monthly payments than the total cost. Determine which loan best matches your requirements and select it.
A direct lender may ask for additional information and seek permission to perform a hard credit check. The lender verifies the data collected and makes a decision, usually in a few seconds, although it may take longer if the lender cannot immediately validate your information.
Assuming you receive a loan approval, the lender sends a contract containing all the details, including the loan amount, interest rate, fees, and repayment schedule. Reading and understanding the loan agreement are essential to avoid surprises later on.
You can e-sign the agreement or reject it. If you sign it, the lender will set up a wire transfer to deposit the proceeds into your bank account, usually by the next business day.
Sometimes, the lender will reject your loan application even though the loan-matching service prequalified your request. When this happens, the lender will send you an Adverse Action Notice (AAN) if it used your credit reports as a basis for its decision.
The AAN explains the denial and the next steps you can take. Treat the AAN as a resource, because it indicates what you must do to ensure your next loan application succeeds.
2. Local Credit Unions
Payday Alternative Loans (PALs) are unsecured loan products from credit unions that help consumers avoid the high costs of conventional payday loans. The National Credit Union Administration (NCUA) created the first PAL (PAL I) in 2010 to offer short-term loan options to credit union members.
PALs differ from conventional payday loans by charging much less interest and allowing borrowers to repay in monthly installments. A PAL I installment loan has the following features:
- Credit unions issue PAL I only to borrowers who have been credit union members for at least one month.
- PAL I loan amounts range from $200 to $1,000.
- PAL I is affordable, with a maximum APR of 28%, including an application fee of up to $20, which reflects the cost of processing.
- Borrowers must repay a PAL I in one to six monthly installments.
- PALs do not permit rollovers.
- Borrowers cannot receive more than three PALs (one at a time) within a six-month period.
In 2019, the NCUA created PAL II for borrowers who need a larger installment loan. PAL II generally follows the same rules as PAL I except for the following:
- Loans of up to $2,000 are available.
- Repayment terms are one to 12 months.
- Application fees are higher — up to $50.
- PAL II does not require members to wait a month to become eligible credit union members — borrowers are eligible as soon as they join the credit union.
- Borrowers can have only one type of PAL at a time.
The following chart compares the two types of PALs:
Nearly every federal credit union offers PALs, although some may not offer both types. You can use the National Credit Union Locator Tool to find a nearby credit union. You must become a credit union customer before applying for a PAL, but it usually takes only $5 to join, assuming you meet the organization’s membership standards.
Many credit unions limit membership based on one or more criteria, including where you live, work, or worship. However, several credit unions open enrollment to any US citizen.
Credit unions allow members of all credit types to qualify for a PAL, including those with poor credit. These financial institutions focus more on your income, debts, and ability to repay your loan. Many credit unions require proof of income when you apply for a PAL.
In summary, credit union PALs are cheaper, more flexible, offer higher loan amounts, and are easier to repay than even the best payday loans.
3. Online Auto Lenders
You probably already know you can refinance your car by taking out a new loan (presumably at a lower interest rate) to repay the original loan. But you may not know how to unlock the equity, the car’s value above the loan balance, that you’ve accumulated in your vehicle.
- Network of dealer partners has closed $1 billion in bad credit auto loans
- Specializes in bad credit, no credit, bankruptcy and repossession
- In business since 1999
- Easy, 30-second pre-qualification form
- Bad credit applicants must have $1500/month income to qualify
- See application, terms, and details.
| Interest Rate | In Business Since | Application Length | Reputation Score |
|---|---|---|---|
| 3.99% – 29.99% | 1999 | 3 minutes | 9.5/10 |
- Auto loan amounts of up to $150,000
- Prequalify in minutes without impacting your credit score
- Refinancing loans save an average of $191 per month
- 125% financing available for cash-out refis
- PenFed Credit Union membership required but can be applied for at the same time as your loan
- See application, terms, and details.
| Interest Rate | In Business Since | Application Length | Reputation Score |
|---|---|---|---|
| 5.19% and up | 1935 | 5 minutes | 9.5/10 |
- RefiJet helps people lower their monthly auto payment by an average of $150 a month*
- Pre-qualifying for a refinance auto loan does not impact your credit score
- Nationwide network of lenders
- We present you with options from lenders that fit your situation
- See application, terms, and details.
| Interest Rate | In Business Since | Application Length | Reputation Score |
|---|---|---|---|
| Varies | 2016 | 5 minutes | 9.0/10 |
Many people are currently sitting on auto equity and can tap into it through a cash-out refi loan. Cash-out refinancing is an excellent way to address several financial needs.
Pros of Cash-Out Refi Loans
- Raising cash quickly despite a bad credit score
- Possibly lowering your current interest rate
- Obtaining more time to repay your loan
- Reducing your monthly payments
- Possibly using your loan proceeds for debt consolidation
Auto loans are relatively easy to get even if you have bad credit because the vehicle acts as collateral. But you will also want to consider the possible disadvantages of a cash-out refi.
Cons of Cash-Out Refi Loans
- Auto loans use the vehicle as collateral. If you’re unable to make payments for any reason, you risk losing the car, which may be more likely if you’ve increased your loan amount and/or lengthened your loan term.
- Taking out a larger loan amount (due to the cash-out portion) and potentially extending the loan term can lead to paying more interest over the loan’s lifetime.
- An extended loan term means you’ll be in debt longer, tying up your money and making it harder to reach other financial goals.
- If your car’s value depreciates faster than your loan balance recedes, you could owe more than the vehicle is worth. This situation is known as being upside down on your loan and can lead to a loss if you decide to replace your car.
- Refinancing comes with fees that may offset some of the benefits.
You can get a car loan by dealing with a direct lender, such as PenFed Credit Union, but you may prefer to use an online network, including Auto Credit Express, myAutoloan.com, or RefiJet.
Auto loan networks work with dealers and lenders nationwide to find you the best refinancing deal. They operate similarly to the previously discussed online networks for payday and personal loans.
Auto loan networks can get you multiple offers to arrange a cash-out refi loan on your car. The networks prequalify your loan request based on your finances and the vehicle’s make, model, mileage, age, and condition.
Multiple lenders compete for your business, and you only need to complete a single loan request form. That competition may result in lower interest rates and higher cash-out amounts. Some refi lenders even offer one- to three-month moratoriums before you have to make the first payment.
To apply for a cash-out refi, you need to produce the required documents, including:
- Proof of employment and income: You’ll need a recent pay stub or W-2 from the previous year. Self-employed individuals can use their 1099s or tax returns.
- Proof of residence: You must provide a document that confirms where you live, such as a driver’s license, bank statement, or utility bill.
- Proof of insurance: You will need a policy document, insurance ID card, or other information confirming your vehicle coverage.
- Vehicle information: The lender will need specific details about your vehicle, including its year, make, model, and VIN.
- Loan information: You must supply your current loan’s payoff amount, which is usually available on your monthly statement or the lender’s website.
The lender may check your credit, so it’s a good idea for you to review your credit reports from the three major bureaus for errors that may impact your credit score.
To be eligible for a refi loan, you may have to meet several requirements, including the following:
- A record of making recent car payments on time
- A maximum debt-to-income ratio
- A minimum credit score
- A valid driver’s license and vehicle registration
- A verifiable source of income, such as a job or government benefits
- Not be in active bankruptcy
- The car must have insurance
- The vehicle cannot exceed age and mileage limits
Your direct lender may have additional requirements. The lender will determine the amount you can borrow, how much interest you’ll pay, and how long you’ll have to repay the loan.
Typical refi loan amounts range from $5,000 to $100,000, with terms running from 24 to 96 months.
4. Pawnshops
You can borrow against the value of items you own if you need quick access to funds. More than 9,000 pawnshops operate in the United States, ready to provide fast cash when you’re in a financial pinch.
Pawnshops accept many items as collateral for a loan, including jewelry, firearms, electronic devices, and collectibles, among others.
Pawnshops only have a few requirements for obtaining a loan. Depending on your state laws, you may need to produce the following:
- Government-issued identification. This is typically your driver’s license, US passport, or state-issued identification card. The pawnshop may scan your ID and keep the image on file.
- Your thumbprint or fingerprint. Some states require you to provide a print of your thumb or fingers.
- A photograph of your face. The pawnshop may photograph your face, even if you supply government-issued identification.
- The provenance of the item. The pawnshop may require you to disclose in writing how and when you obtained the item.
These requirements are aimed at reducing the possibility of a person stealing and fencing valuable items.
When you bring in an item, the pawnbroker assesses its resale value and may offer you a loan for a small percentage (typically 25% to 60%) of what the broker can sell it for.
Imagine bringing in a Rolex watch you purchased for $2,000. The pawnshop determines it can sell it for $1,000 and will offer you a loan based on a fraction of the determined resale price.
You may get anywhere from $250 to $600 for your $2,000 watch. If you don’t repay the loan by the due date, you’ll lose your expensive watch for a relatively small amount of money.
The pawnshop will also charge you interest on the loan, typically at a high APR The interest will further cut into your net proceeds, and the broker may add other fees, including storage, insurance, or additional costs.
If you accept the loan terms, the pawnshop will hand you the cash and a pawn ticket. You present the ticket when you repay the loan and retrieve your item.
The shop will keep your property as collateral for the loan term. State law determines how much time you have to repay the borrowed amount plus interest and fees. The period is usually 30 to 120 days.
The pawnshop may allow you to renew the loan if you don’t repay it by the due date. If so, the broker will attach more fees.
Ultimately, if you don’t repay the loan, the pawnshop will own your item and is free to sell it to another customer. You could repurchase it, but you’ll pay the shop’s price.
Pawnshops do not report loan payments to the credit bureaus, so don’t expect to build credit by hocking your property.
5. Storefront Payday Lenders
Storefront payday loans are short-term loans from neighborhood lenders in brick-and-mortar stores or offices. These lenders provide payday loans to individuals who need extra cash until their next paycheck arrives.
Storefront lenders offer payday loans (also called cash advance loans, check advance loans or emergency cash loans) without checking your credit. You must provide proof of income, such as recent pay slips.
There are two ways to qualify for a storefront payday loan:
- Write a post-dated check for the loan amount plus fees. The payday lender will hold the check until your next payday. You can pay the amount due on that date, or the lender will deposit your check.
- Give the lender online access to your bank or credit union account. The lender will withdraw the payment on the due date.
If the check bounces or you have insufficient funds, the lender will roll over the loan by capitalizing the fees already assessed, adding new fees, and rescheduling payment for your next pay date. Multiple rollovers may cause your debt to spiral out of control, and could eventually force you into bankruptcy.
Some states limit APRs or how often you can roll over a payday loan. Others may ban the loans entirely.
Storefront payday loans charge astronomical APRs, typically 400% to 700%. They are made for people who cannot access credit from traditional lenders, including banks or credit unions. Their biggest advantage is that you can receive the loan proceeds in minutes.
Although just as costly, online payday loans are more convenient and secure since they don’t require travel. Several of our reviewed networks arrange the most efficient type of payday loans — ones that wire money to your checking account as soon as the next business day.
Tips For Getting a Loan With Bad Credit
Bad credit need not prevent you from getting a loan. Borrowing costs may be high, and the loan amount limited, but we have several tips to make it easier for you to succeed.
Provide Collateral
The loan amount is a significant factor in the approval process, regardless of the type of loan you need. The challenge is greater when you have poor credit.
Asking for a loan larger than the lender thinks you can repay will result in an automatic denial if you have poor credit and a limited income. Even with good credit, asking for a budget-busting loan can cause a lender to reject you as a credit risk.
Collateral solves these problems by ensuring the lender won’t lose money if a bad credit borrower defaults on a loan. Lenders that accept (or demand) collateral require the borrower to sign a lien allowing the lender to seize the property without a court order should the borrower fail to repay the loan.
The lender can then sell the collateral to recoup the loan amount and additional costs. The bad credit borrower may receive leftover funds if any remain.
You can use the proceeds from some collateralized loans only for earmarked purposes (for example, mortgages and auto loans). But you are free to spend the money from cash-out car refinancings and pawn loans however you want.
Collateralized loans often require (or at least encourage) down payments, most notably when purchasing a home or a vehicle. In a way, pawn loans have built-in down payments because pawnshops lend only a fraction of the property’s value.
Recruit a Cosigner
Consider asking a friend or family member to cosign the loan contract If you can’t find a lender willing to approve a loan. Many auto lenders and mortgage brokers allow applicants to apply with a qualified cosigner.
Cosigners are individuals with good credit who agree to take responsibility for a loan or credit line if the primary borrower can’t make timely payments. Cosigners are similar to co-applicants, except they typically don’t have a claim to the loan proceeds.
Only those with good credit can be cosigners.
The biggest advantage of having a cosigner is that the lender is more likely to approve your loan application. Applying with a well-qualified cosigner may reduce the loan’s interest rate and increase the loan amount.
The disadvantages mostly fall on the cosigner rather than the primary borrower. Cosigners are legally responsible for the debt. The lender will seek payment from the cosigner if the primary borrower doesn’t repay the debt.
Moreover, the credit bureaus record the loan payments in the files of both signers. This practice means that missed payments will damage the credit scores of both the principal borrower and the cosigner.
Improve Your Credit
Borrowing is easier when you have good credit. Even if your credit score is currently in a bad place, you can take steps to increase it. The single most important habit you must adopt is to pay your bills on time, every time.
Consider working with a nonprofit credit counselor if paying on time is a chronic challenge. A counselor can suggest steps to take, including budgeting and debt consolidation, that should help you pay on time.
You might also consider taking on extra work to increase your income. Use the additional earnings to pay your bills and reduce your debt. Debt reduction is second only to timely payments in boosting your credit score.
Paying off credit card debt is especially useful because it reduces your credit utilization ratio (i.e., credit used to credit available). Going from a high CUR to a lower one (ideally around 1%) will significantly improve your FICO score.
You also should review your credit reports and have derogatory information removed if it is incorrect, obsolete, or unverifiable. See our article, 5 Ways to Legally Remove Items From Your Credit Report, for details on fixing erroneous items on your reports so they no longer drag down your credit history.
Services such as Experian Boost can raise your score by increasing the number of sources that report your payments to the credit bureaus. This strategy is only effective if you pay your bills on time.
What Is a Bad Credit Loan?
A bad credit loan is designed for borrowers with low credit scores. The dominant consumer scoring model is FICO, used by 90% of top lenders.
FICO scores from 300 to 669 are subprime, and scores below 580 are very poor. Getting an affordable loan with bad credit is challenging, but it is attainable.
Even the best bad credit loan is usually small and has a relatively high interest rate. You can save a ton of money by improving your credit. In some cases, the APRs on good credit loans are half of those available to borrowers with bad credit.
Which Loan Is Easiest to Get With Bad Credit?
Secured loans (i.e., loans backed by collateral) are the easiest to attain when your credit is poor. As explained earlier, collateral shifts economic risk from the lender to the borrower. Lenders will make secured loans to those who would not qualify for unsecured loans.
You must be willing to lose your property when you use it as collateral. But if you feel you can handle a loan without defaulting on the payments, a secured loan is an excellent way to overcome the burden of a bad credit score.
Which Loan Companies Work With a 500 Credit Score?
Some lenders specialize in working with subprime borrowers. A 500 score is very poor, yet it doesn’t completely rule out your access to a loan. Providers of payday and secured loans (including pawnshop loans and cash-out auto refinancing) do not rely on your credit history or score. They are your best bets for overcoming poor credit.
The online networks we have reviewed are probably your best loan sources when your credit score is 500. Expect to pay high interest and fees for one of these loans, but you may be willing to do so in an emergency.
The best personal loan is often unsecured and structures its payments to give you months or years to repay the debt. A PAL is also a good choice because, as with a bad credit personal loan, the APR is below 36%.
You should consider payday loans as a last resort when you don’t have any better loan sources. Payday lenders don’t check credit and don’t require collateral. That is why payday loans remain popular despite their astronomical interest rates.
What Are the Differences Between Network and Direct Loans?
When you apply for a loan directly from a bank or credit union, you deal with that financial institution alone. These direct lenders usually prepackage their offerings and may not have products suitable for subprime borrowers.
Direct lenders set the qualification criteria and terms for each type of loan. The loan details are available on the lender’s website and in the fine print of their terms and conditions.
In contrast, lending networks do not provide loans and other credit products directly. Instead, they generate leads for direct lenders — their partners — seeking borrowers.
Lending networks are intermediaries, and their purpose is to prequalify your loan request and connect you to one or more lenders. Using a lending network has several advantages compared to going through a direct lender:
- Prequalifying your loan request: When you attempt to borrow from a direct lender, you risk rejection after doing all the research and getting your hopes up. An unexpected denial wastes your time when you urgently need cash to cover an emergency expense. An online network prequalifies your loan request before providing links to direct lenders. It will connect you to the loans that fit your credit profile, increasing your chances of receiving a loan approval.
- Easy comparison — An online lending network saves you the time it would take to research individual lenders and review each offer separately. Instead, you receive the offers all at once and can easily compare them.
- Instant access to many lenders — A lending network may have partnerships with more than 100 online lenders. Consider how challenging it would be to identify and apply to each lender separately.
- Find a lender that specializes in the loan you want — Some lending networks concentrate on specific loan types, such as payday or auto loans, while others offer a wide variety of options.
- Protection against credit damage — When you submit a loan application, the lender dispatches a hard credit inquiry to one or more credit bureaus —TransUnion, Experian, and Equifax. The credit bureaus record the hard inquiry on your credit file. Several inquiries within a short time can harm your credit score. When you use a lending network, you can apply to one viable lender, which can protect your credit.
- No cost to you — Online lending networks charge borrowers nothing. The networks generate revenue through finder’s fees they collect from direct lenders when you accept a loan offer. You’re not obligated to accept an offer, and the network will not receive the payment if you decline. This contingency explains why it is in the lending network’s best interests to present loans to you that benefit both parties.
You can pursue many borrowing options if you have excellent credit. Online lenders seek out prime borrowers and may even mail out unsolicited offers.
But looking for a loan when you have a bad credit score is challenging. Traditional banks and credit unions may be unable to satisfy your requirements. You may lose faith that anyone will lend you money. And even if you find a lender, you may discover that it has low ratings from previous customers.
Lending networks find lenders for you, so you don’t waste time searching and worrying. The loan-finding services partner with sound financial institutions that welcome borrowers with less-than-perfect credit.
How Can I Recognize a Predatory Lender?
A predatory lender, also known as a loan shark, charges an absurdly high interest rate to desperate borrowers. Typically, predatory loans are short-term and impose heavy penalties (usually financial, sometimes via property) if your payment is late.
You can recognize predatory loans in several ways, including the following:
- High financial penalties for late repayment: These can include astronomical late fees and even higher penalty interest rates.
- Lies, lies, lies: Predatory lenders often misrepresent or hide the loan terms and frequently make loans they know you will have trouble repaying.
- Lack of documentation: You should see red flags when the lender refuses to put the loan terms in writing. That’s your signal to look elsewhere for a loan.
- High-pressure tactics: The lender may tell you that the deal is available only for 24 hours or that the price will increase if you wait until tomorrow. In more extreme cases, the lender may express regret over what will happen to you if you don’t sign the loan agreement.
Look out for all of the signs of a predatory loan:
You can file a complaint with one or more state and federal agencies if you feel a predatory lender has victimized you.
Compare the Best Loan Places For Bad Credit
We’ve reviewed several ways to get a loan despite your bad credit. One or more of them may provide the funds you need when you are short of cash. No matter what option you pursue, remember to read any loan document before signing it.
Many borrowers have faced unwelcome surprises because they failed to read and understand a loan contract. It’s always worth the time to get an expert opinion from a financial advisor instead of rushing into an agreement you’ll regret later.
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