Large loans for bad credit

Managing your finances can feel overwhelming when money’s tight — especially if your credit score isn’t where you want it to be. A lower score can make it harder to get approved for financing, and if you do qualify, the interest rates are often higher.

Still, there are options out there. From large loans for bad credit to creative alternatives, there are ways to access the funds you need and get back on track. Here’s what to know about your options and how they work.

Is it possible to get a large loan with bad credit?

Yes, it’s possible to get approved for large loans even with a bad credit score. However, you may incur higher interest rates and fees or less favorable loan terms.

Depending on how bad your credit is, you may need to seek alternative lenders who specialize in low credit scores. As your credit score improves, you may qualify for better interest rates and terms to refinance your existing loan and pay it off more quickly.

Large loans for bad credit: A guide

There are many different types of large loans for bad credit. Each loan type can be a good option depending on your financial situation, loan amount, and how quickly you want to repay the loan.

Personal loans

You can qualify for a personal loan with bad credit if you have enough income to get approved. In most cases, these loans are unsecured, which means that you don't need to pledge assets as security. However, some personal loans are secured loans, using your bank account, car title, or other assets as collateral. When you get approved, you'll receive a lump sum of cash, then make monthly payments for a set period of time (typically one to seven years).

Banks, credit unions, and online lenders offer personal loans. Each lender has different minimum credit score requirements in order to approve your application. Typically, you'll receive a fixed interest rate and have a constant payment throughout the loan term. Some lenders charge origination fees of 1% to 3% upon approval based on your loan amount. These fees are subtracted from your loan proceeds before they are deposited in your bank account.

Loan amount, minimum credit scores, and loan repayment terms vary by lender. So, while you can get approved for large loans with bad credit, shop lenders to ensure their maximum loan amount will meet your needs. For instance, Wells Fargo offers personal loans ranging from $3,000 to $100,000 with repayment terms of 12 to 84 months (one to seven years). By comparison, online lender Upstart gives loans of $1,000 to $50,000 for three to five years.

Second mortgage loan

A second mortgage loan is a loan in addition to your primary mortgage. These loans tap into your home equity and do not affect the interest rate, monthly payment, or term of your current mortgage. There are two main types of second mortgage loans: home equity line of credit (HELOC) and home equity loan.

For both types of loans, you can borrow up to a maximum loan-to-value (LTV), which is usually 80% to 90% of your home's appraised value. The maximum LTV includes your current mortgage and determines how much you can borrow from your home's equity. For example, if your home is worth $400,000 and has a $250,000 mortgage, with an 80% LTV, you can borrow up to $70,000 from your home.

An equity line of credit gives homeowners a revolving line of credit. If they don't use the HELOC, there are no payments. If they do, the minimum monthly payment is interest-only, based on the amount borrowed and the current interest rates during the draw period. As you repay the balance, you'll free up available credit to use at a later date.

Home equity loans provide a lump sum of cash upon approval. These loans operate much like a traditional mortgage because they have fixed interest rates, a constant monthly payment, and a specific repayment term. Once the term is over, the loan is paid off. In most cases, you can pay off the loan early without prepayment penalties.

Home equity investment

A way to tap your home equity without adding another payment to your monthly bills is a home equity investment (HEI). Although not technically a loan, it’s worth consideration. With an HEI, you can access a lump sum in exchange for a share of your home’s future appreciation. There are no monthly payments, but when you sell, refinance, or buy out the investment, you'll share a slice of your home’s change in value. 

While you'll still undergo a financial evaluation when applying for an HEI, these investments are perfect for borrowers with less-than-perfect credit. Additionally, you don't need to prove income in order to get approved for a home equity investment. For individuals seeking large loans with bad credit, an HEI is an ideal option, as you can borrow up to $500,000.

401(k) loan

For many people, a 401(k) account is their second-largest asset after their home. While this money is intended for retirement, most companies allow workers to take out a 401(k) loan.

You can borrow up to $50,000 or 50% of your 401(k) balance, whichever is less. The loan must be repaid within five years, and your regular paycheck contributions pay off the loan and accrued interest rather than increase your balance. One of the biggest benefits of borrowing from your 401(k) is that all eligible borrowers are approved, regardless of their credit score.

However, any unpaid balance when you leave the company (on your own, through layoffs, or by getting fired) counts as a withdrawal subject to taxes and penalties. More notably, if you fail to catch up on contributions, you may find yourself short on funds come retirement. 

6 quick tips to boost your credit score

If you have bad credit, you have a huge opportunity to improve your credit score before applying for a loan. Being able to qualify for lower interest rates can make a massive difference in your monthly payment on large loans for bad credit.

Follow these tips to increase your score:

• Check your credit report: Review your credit history for any errors; be sure to dispute these to raise your score. 
• Pay down credit card balances. Credit utilization is the ratio of debt to credit limits on your credit cards and lines of credit. By paying down your balance, you can reduce this ratio and increase your credit score. A rule of thumb is to keep balances under 30% of your credit limit, but under 10% is ideal.
• Ask to raise credit limits. If you can keep from spending extra, raising your credit limits is another way to reduce your credit utilization. Keep in mind that some banks may do a hard inquiry for this request, which can temporarily lower your score.
• Make all payments on time. Your payment history is the number one factor in your credit score. By making all payments on time, you'll keep a solid payment history. This shows potential lenders that you can handle your debts responsibly.
• Avoid unnecessary inquiries. Each credit inquiry can lower your credit score by 3 to 5 points. Numerous credit inquiries in a short period of time is often a sign of financial trouble. This can lead to a lender declining your application, even if you meet its other criteria.
• Become an authorized user. Adding your name to an established credit card of someone with a higher credit score can help boost your score. As an authorized user, you ride piggyback on top of that card's payment history and credit utilization. As long as that account remains in good standing, your credit score can benefit from it.

Final thoughts

Large loans for bad credit can be a useful tool for covering major expenses or consolidating existing debt. Depending on your financial situation, they may help lower your monthly costs and make repayment more manageable.

There are numerous borrowing options available, including those that use your home equity to secure lower interest rates. If your credit score is low, take steps to boost your score before applying. This can increase your approval odds and help you qualify for lower loan rates and better terms.

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