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How to choose the best low credit lenders

Borrowers with less-than ideal credit have special considerations. Learn about choosing the best low credit lenders.

Yuliya Benkhina
May 13, 2024
Updated:

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When you have poor credit, finding financing can feel like a challenge. Financial institutions view lending to individuals with lower credit scores as high risk, which leads to higher rates and fewer options. However, lenders willing to work with low-credit borrowers exist – you simply need to know where to look. 

In this guide, we’ll take you through the best low credit lenders. We will also cover the basics of finding a loan with bad credit, whether you're looking to rebuild your credit or simply need access to funds.  

What is considered bad credit?

If you have taken out a loan or used a credit card before, you probably have a credit score. Credit scores measure the perceived risk of lending you money. If you have a higher score, lenders view you as less likely to default on the loan,; while a lower score means that lenders are concerned about your ability to repay the debt. 

Scores exist in a range – 300 to 850. Bad credit is typically defined as the bottom end of that range: 300 to 579. Factors that can lead to a lower score include:

  • Missed payments
  • A high utilization rate (meaning you are using most of the credit available to you) 
  • Insufficient credit history (meaning that you have little experience with using credit cards or loans) 
  • Bankruptcy 
  • Too many new accounts 
  • Not enough total accounts 

Your credit score can vary depending on the bureau and the data model a specific lender uses to calculate your creditworthiness. You can view your credit score from all three major credit bureaus by getting your free credit reports

What is a bad credit loan, and how does it work?

Bad credit loans are designed for people with a poor credit score or a limited credit history. Because lenders consider these a more risky type of loan to extend, they offset the perceived risk through higher interest rates, origination fees, or other charges. These loans may also require collateral that your lender can repossess if you default on your loan – or ask you to bring a cosigner with better credit. Additionally, borrowers with poor credit who receive loan offers tend to qualify for smaller loan amounts. 

Bad credit loans have lower minimum credit score requirements, and some types of loans simply don’t require a credit check. 

Personal loans with bad credit: An overview

Personal loans provide borrowers with a lump sum of cash, which is repaid over a set term via monthly payments. 

Rate, term, and other loan conditions can vary greatly depending on the lender. Generally, the term ranges from one to seven years, and loan amounts can be as small as $600 or as large as $100,000. 

Some lenders even offer secured personal loans. With a secured personal loan, borrowers put up some form of collateral (a valuable item that the lender can repossess if the borrower defaults on the loan) in exchange for a better rate or a larger loan amount. 

The challenges of personal loans with bad credit 

You should consider a few different factors before applying for a personal loan with bad credit. 

Higher cost

Every lender offers a range of possible interest rates on their personal loan products. With a lower credit score, you can expect to fall at or near the top of the range. Lenders who offer bad credit personal loans may also have additional charges. Be sure you understand the full costs associated with your personal loan before moving forward with a lender. 

Fewer loan options 

When comparing personal loans for bad credit, you will simply have fewer options to choose from. Comparison shopping is an important part of any loan process, as it helps ensure that you get the best deal out there.  

Single purpose loans

Some of the best low credit lenders offer their loans only for a single purpose – that might be paying for education or consolidating existing debt. If that’s what you are hoping to do, that’s great. However, if you are looking to use your loan proceeds for something else, this can make your search more challenging.  

Smaller loan amounts

If you are looking for more funds from your personal loan, you may struggle to find a lender willing to write that check for someone with poor credit. 

Cost of personal loans with bad credit 

While the average personal loan rate is around 12%, that average includes borrowers with excellent credit. According to Bankrate, these are the average interest rates by credit score (as of spring 2024): 

Average loan interest rate by credit score:

  • 720-850: 10.73%-12.50%
  • 690-719: 13.50%-15.50%
  • 630-689: 17.80%-19.90%
  • 300-629: 28.50%-32.00%

If you have poor credit, a lender who is willing to offer you a personal loan is likely to charge you an APR at the top end of that range – currently over 30%. 

Best low credit lenders

Now that we’ve covered the special considerations of getting a personal loan with bad credit, let’s dive into some of the best low credit lenders out there. There are two main categories of lenders for you to investigate when comparing personal loans for bad credit borrowers. 

Online lenders

As online lenders are newer companies, many of them have a greater risk tolerance than established, traditional banks. This can be great news for anyone looking for a loan with less-than-ideal credit. 

There are a myriad of online lenders out there today, and it’s crucial to do your research to make sure you are working with a reputable lender. 

Two popular companies that advertise working with borrowers whose credit scores are under 600 are Avant and Upstart

You should also consider checking out a loan aggregator to see what options they find for you. A few of the top loan aggregators are: 

In-person lenders

While traditional banks tend to be more conservative about their requirements than online lenders, there is a notable exception to this rule: credit unions and smaller, local banks. 

If you have an existing banking relationship with a credit union or a small bank, they may consider your loan application even if you have a lower credit score.  The rates offered by credit unions may also be more competitive. If you don’t already bank with a credit union, see which ones exist in your area. Local credit unions are likely to offer more personal customer service than an online option, and may even offer you tips on qualifying. 

Other financing options to consider

When looking into your options, you should consider the alternatives to getting a personal loan with bad credit. Depending on your assets and other financial considerations, you may have more options than you think. 

Home equity investment

If you are a homeowner with bad credit but plenty of home equity, you may have a powerful financing tool at your disposal: a home equity investment (HEI).

How it works

With a home equity investment, homeowners get cash today in exchange for a share of their home’s future appreciation. A key benefit for many homeowners is that an HEI has no monthly payments and a flexible, 30-year term. This gives you plenty of time to rebuild your credit score. 

Eligibility

  • Credit score – 500+
  • DTI/income requirements - None 
  • Funding ranges –$ 25,000 to $500,000
  • Must be a homeowner 

Considerations 

To qualify for a home equity investment, you’ll need plenty of equity, as well as an eligible property type in a location where home equity investments are offered. Since the minimum investment amount is $25,000, HEIs are a better fit for individuals looking for a large check size. 

HELOCs and home equity loans

Homeowners with moderate credit scores and good income may be able to get a better rate on a HELOC or home equity loan than they could find on a personal loan. Because these types of loans are secured by your home, lenders view them as much less risky. 

How it works

While the structure of HELOCs and home equity loans differs, the core concept is the same. You get a loan that is backed by your home, and you make monthly payments for the duration of your term. HELOCs work more like credit cards, while home equity loans are more similar to your first mortgage. 

Eligibility

  • Credit score – 620+
  • DTI/income requirements  – No more than 43%, with steady monthly income 
  • Funding range – Varies by lender, but often $20,000 to $400,000 
  • Must be a homeowner 

Considerations 

Because HELOCs and home equity loans are backed by your home, lenders can foreclose if you fail to make your payments. Borrow only what you can afford to repay to avoid the risk of losing your home. You’ll also need to have a decent amount of home equity to qualify – generally at least 20%. 

Peer-to-peer lending

Instead of borrowing money from a bank, you can borrow money from another individual via peer-to-peer lending. 

How it works

Peer-to-peer lending works very similarly to a regular personal loan – the main difference is the source of funds. When you apply, your loan is matched to investors who provide money for other people to borrow in exchange for a monthly payment with an interest rate. 

Eligibility

  • Credit score – Generally 600+, though some lenders go down to 580 
  • DTI/income requirements – Varies by lender, often 20 to 34%
  • Funding range – $1,000 to $50,000

Considerations 

Since P2P companies are not profiting as much on the interest rate, they can charge additional fees to make it worth their while. Make sure you understand the full cost of a P2P loan before moving forward. 

401(k) loans/hardship withdrawals

You may be able to borrow from the person with the best incentive to lend you the money: yourself. If you have a 401(k), that money may be available to help you in your time of need – with a few catches. 

How it works

401(k) loans are different from hardship withdrawals. With a hardship withdrawal, you have to prove to the IRS that you truly need to take the money out of your account. Withdrawals also come with tax penalties. Meanwhile, a 401(k) loan involves borrowing funds from your 401(k) account with an agreement that you will pay your savings back, with interest.

Eligibility

  • Credit score – No credit check 
  • DTI/income requirements – No income requirements 
  • Funding range – up to $50,000 or 50% of your savings (whichever is less)
  • Must have 401(k) 
  • Must repay within 5 years 

Considerations 

Every dollar you take out of your 401(k) is a dollar that is no longer growing and preparing to fund your retirement. Before taking any money out of your 401(k), make sure you have an airtight plan for rebuilding your nest egg. Like any regular loan, you will pay interest on any money you borrow – however, the interest will go to your own savings. 

Cash advances

A modern, app-based version of a payday loan, cash advances let you borrow money against your own next paycheck. These products are also sometimes known as early payday apps. 

How it works

You download an app that advances a small sum of money before your next paycheck to a linked bank account. When your paycheck comes in, the advance is repaid automatically via that same linked account. 

Eligibility

  • Credit score – No credit check
  • DTI/income requirements – Requires a verified, steady income
  • Funding range – $10 to $500 

Considerations 

While these apps are designed to help you cover a shortfall until your next paycheck comes in, they come with a bevy of charges. Although they are cheaper than a payday loan, they can still lead to being trapped in a cycle of borrowing. 

Payday loans

These short-term loans are designed to cover a shortfall until your next paycheck. They are known for high fees and exorbitant interest rates (often exceeding 300% APR). 

How it works

Borrowers get a check for a loan, which they must repay with interest in two to four weeks – on their next payday. Some in-person lenders require a postdated check for the full repayment amount, dated to your next payday, as a condition of funding. If you cannot repay the loan at the end of the term, it gets rolled over for an additional fee. 

Eligibility

  • Credit score – No credit check
  • DTI/income requirements – Requires a verified, steady income
  • Funding range – $10 to $1,000

Considerations 

While the broad eligibility criteria and fast funding may appeal to borrowers struggling to make ends meet, the high costs and the risk of getting caught in a cycle of reborrowing make this an option of absolute last resort.

Pawnshop loans

If you have a valuable item that you do not wish to sell, you may be able to put it up as collateral for a pawnshop loan – for a price. While rates are not quite as high as payday loans or title loans, you will still be charged an exorbitant 200% APR

How it works

A quick, straightforward transaction – pawnshop loans offer you a short-term loan backed by a valuable object that is held as collateral. If you cannot repay your loan, the item you put up as collateral will be sold.  

Eligibility

  • Credit score - No credit check
  • DTI/income requirements – No income check
  • Funding range – 25% to 60% of the resale value of your collateral 
  • Must have a valuable item to put up as collateral 

Considerations 

While these loans do not impact your credit, you may end up losing a valued (perhaps sentimental) item for a fraction of its value. You’ll also be charged a high rate. 

Title loans

These short-term loans, secured by the title of your car, give you cash today in exchange for high fees and a shocking interest rate – often over 300% APR. 

How it works

You get cash, to be repaid in two to four weeks. The loan is secured by your vehicle, which can be repossessed if you don’t repay the full amount on time. These loans can sometimes be rolled over for an additional cost.  

Eligibility

  • Credit score – No credit check 
  • DTI/income requirements - No income check 
  • Funding range – 20% to 50% of your car’s value 
  • Must own a car outright 

Considerations 

In addition to the very expensive rate, you run the risk of losing your car. If your livelihood depends on being able to drive to your workplace, this can be devastating. 

Pros and cons of borrowing with bad credit

Now that we’ve covered some options for borrowing with bad credit, let’s recap the pros and cons. 

Pros:

  • Access to financing: Bad credit lenders are more willing to work with borrowers with low credit scores, providing access to funds that may otherwise be unavailable.  
  • Opportunity to rebuild credit: Assuming that you’re using a type of loan that is reported to the credit bureaus, timely repayment of loans from bad credit lenders may help build your score. 
  • Flexibility: Bad credit lenders may offer more flexible terms and repayment options than traditional lenders.

Cons:

  • Higher interest rates: Because lending money to borrowers with bad credit is seen as a risk, the rates can be much higher than those for borrowers with higher credit scores. 
  • Limited loan options: There are fewer options for borrowers with bad credit – and the loan amounts offered can be much smaller. 
  • Predatory lending practices: Borrowers with bad credit must navigate a landscape of bad actors who take advantage of financial desperation with high fees and interest rates. 

How to compare your options

While it can be tempting to accept the first loan offer, especially when you are in dire need of funds, you should still make sure to compare your options. Look at the following: 

  • Interest rates and APR: Understand the full cost of borrowing from every lender on your list. 
  • Repayment terms: How long will you have to repay the loan? Is the rate fixed, or will it fluctuate every month? 
  • Fees: Many loans come with origination fees, late fees, closing costs, and other miscellaneous charges. Don’t forget to include these when computing overall cost. 
  • Lender reputation: Research the lenders’ reputation, read customer reviews, and make yourself aware of any legal actions taken against the lenders on your list by consumers or consumer advocacy groups. 

Tips to qualify for a loan with bad credit

These tips can help you improve your chances of qualifying. 

  • Check your credit report for errors: Review your credit report regularly and make sure all the information is accurate. Errors can negatively affect your score. Reach out to the credit bureaus to correct any issues you may find. 
  • Ensure you have a steady, documented income: Lenders are often more willing to consider borrowers with lower credit scores who can prove a strong income. However, high DTI borrowers may still have options. 
  • Consider a co-signer: Some lenders allow you to apply with a co-signer. If a friend or family member with better credit is willing to co-sign your loan, that can improve your chances of qualification. Remember – defaulting on a co-signed loan will negatively impact your co-signer (and thus, very likely, your relationship). 
  • Compare multiple lenders: Never take the first offer. Shop around to find the best rates and terms available in your circumstances. 
  • Build your credit: If you’re having trouble qualifying for a loan, take a few months to pay down your existing debt and check your offers again. 

FAQs

Let’s cover some top frequently asked questions about the best low credit lenders. 

What are other factors lenders consider when applying for a loan?

Other considerations besides credit score vary based on the type of loan and the lender, but can include: 

  • Income and debt-to-income ratio (DTI) 
  • Employment history 
  • Monthly expenses 
  • Home value/value of other collateral 

Is it better to wait or apply for a loan with bad credit?

This really depends on your unique situation. If you are eligible for a financial product that can help you improve your financial situation and outlook, taking the leap now may be worth it. However, if you have the opportunity to pay down debt and improve your credit score first, you will generally save money in the long run. Talk to a financial advisor to get a more detailed recommendation for you. 

How do you avoid a bad credit loan scam?

Work with reputable lenders and online companies and read what other consumers are saying about them. Educate yourself on common scams. Remember – if something seems too good to be true, it often is. 

Are there government grants for hardships?

Depending on the type of cost you are trying to cover, there may be government grants available — particularly if you are a senior citizen, veteran, or a member of another protected group. Look into grants on the federal, state, and local level. 

Final thoughts

If you have bad credit, you may still be eligible for loans. With this guide, you should be prepared to find the best low credit lenders and make informed decisions about your financial future. If you are a homeowner with bad credit, consider looking into a home equity investment from Point. Point’s HEI lets you unlock up to $500k with a 500+ credit score and no income requirement. It takes under two minutes to see if you qualify.

No income? No problem. Get a home equity solution that works for more people.

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