How to get a personal loan—even with bad credit

A bad credit score is typically anything below 600. If your score is less than that, it’s likely you’ll experience some difficulty getting approved for borrowing and in cases when you do receive approval, you may not be offered the most competitive interest rates. But that doesn’t have to be the case. With a bit of advance effort and by shopping around, it is possible to get a personal loan with subprime credit.

5 ways to get a personal loan with bad credit

Getting approved for a personal loan when you have bad credit is not out of the question. But you can improve your odds of success—and maybe even the interest rate you’re offered by following some of the steps below. 

1. Check your credit
The first step before applying for a loan is to check your credit. Your credit score and credit profile play a major role in determining whether you’ll qualify for a loan and at what interest rate. So it’s important to know what your current score is and take any steps available to improve it.

“The best thing you can do is make sure your credit is in as good of shape as possible before applying,” says Barry Rafferty, senior vice president for the personal finance company, Achieve. “That starts with checking credit reports to make sure everything is accurate and in good order. Why? Because the information from credit reports is what goes into calculations for credit scores.”

2. Compare your options
The lending marketplace is extremely competitive, so it behooves you to shop around and find the best loan offers possible. There’s also multiple types of loans available, some of which may be more accessible to borrowers with lower credit scores. The options include:

• Secured loan: These types of loans are backed by collateral. That means they’re secured by your own financial assets, such as your car or home. “Since you are putting up collateral…you will get more favorable terms on a secured loan,” says James Lambridis, founder and CEO of DebtMD, a free service that connects consumers with lenders, credit counseling agencies and debt settlement companies.
• Bad credit loan: Bad credit loans are loans designed for borrowers whose credit scores are at or below a 600. Interest rates on these loans are typically higher than other loans. In addition, the terms for these loans may be much shorter.
• Title loan: A title loan does not require good credit. Instead, your car is used as collateral for the loan. These loans can be very risky. Not only are the interest rates far higher than most other forms of lending, but in order to obtain the loan borrowers are required to turn over the title of their vehicle to the lender. The repayment timeline on a title loan is also typically very short—as little as 15 to 30 days. 
• Payday loan: Similar to title loans, payday loans are often considered predatory. The interest rates are very high and the timeline for repayment extremely short. “Payday loans come with exorbitantly high interest rates. If calculated on an APR basis, upwards of 400%,” says Lambridis. “In addition, some companies who offer these loans prey on desperate borrowers, so you probably won’t be dealing with the most ethical of companies.”

3. Get pre-qualified 

Getting pre-qualified with several lenders is another important part of the process when you’re seeking a personal loan with bad credit. By shopping around, you’ll develop a better picture of the rates and loan terms you might qualify for. “Different lenders will offer different advantages to prospective borrowers. Each will have different rates and also different ways of working with customers,” explains Rafferty.

In fact, some lenders that specialize in working with borrowers who have lower credit scores may consider a variety of other financial factors in order to help you qualify you for a loan. This may include your income, employment history, and even your educational background.

“Getting a personal loan is not just about credit scores,” Rafferty adds. “Additional items, including amount of overall debt one holds, debt-to-income ratios and income, can influence whether a consumer is approved for credit and the rate that they qualify for.”

4. Find a co-signer 

Finding someone who’s willing to cosign a loan for you is another way to increase your odds of approval.

“A co-signer who has an excellent credit profile and score can help an applicant in securing a loan and at a good rate, because it means both the applicant and co-signer are legally responsible for paying the loan back,” says Rafferty. “The co-signer serves as back-up in case, for some reason, the primary applicant can not make a payment.”

When searching for a cosigner, it’s important to find someone who not only has a good credit score on their own, but is also someone you have a good relationship with and can trust. If you fail to repay the loan or fall behind on payments, your cosigner will be responsible for meeting the payment obligations.

5. Apply for the loan

Once you’ve selected the lender you would like to work with, it’s time to apply for the loan. The documents required for application typically include W-2s, paystubs, tax returns, Social Security number and more. Though each lender may have slightly different documentation requirements.

Additional considerations when opening a bad credit loan

Before making a final decision on a loan, it’s important to consider the full picture—which includes the monthly payment amount, total interest costs, and all of the fees that are often included within the fine print.

• Understand the loan’s monthly payment before you borrow: It’s important to carefully review your budget and how loan payments will fit within your cash flow. Make sure you’re not taking on more than you can handle.
• Understand the total interest costs before you borrow: The total cost of your loan includes not just the principal but also the interest you will pay over the life of the loan. Be sure to carefully calculate the interest for each loan offer you receive to compare your total cost of borrowing.
• Fees associated with bad credit loans: Loans include a variety of fees, so be sure to read the fine print before signing on the dotted line. This includes origination fees, late payment fees, and early termination fees.

The takeaway

Having less than ideal credit does not rule out being approved for a personal loan. Reviewing your credit score and taking steps to improve it before applying, and shopping around with multiple lenders are just some of the steps that can help improve your approval odds. But it’s also important to avoid predatory lenders offering title loans or payday loans that come with exorbitant interest rates and extremely short repayment timelines.