Finding loans for a 500 credit score: a guide

A loan can feel like a lifeline when the unexpected arises. However, finding the help you need may feel impossible when you also have a bad credit score.

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The good news is that even with poor credit, you have options. Although obtaining a loan with a 500 credit score is complicated, with some effort, you can get the financial relief you're looking for. 

Loans for 500 credit score individuals 

Bad credit personal loan

How it works: Bad credit personal loans are designed for individuals with low credit scores. Lenders will typically evaluate your income and overall financial situation rather than just your credit score. You’ll begin making fixed monthly payments to repay the loan almost immediately. 

• Requirements: Lenders will assess your credit score, income, and debt-to-income ratio—thresholds vary from lender to lender. 
• Considerations: Rates are considerably higher, ranging from 28.50% to 32.00%, with repayment terms ranging from 1 to 7 years. 

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Reputable lenders who offer emergency loans for 500 credit score borrowers include Avant, LendingPoint, and OneMain Financial. 

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Pro Tip: Some personal loans are tailored for specific needs, such as medical bills, funeral costs, or debt consolidation. Due to their targeted nature, lenders often offer better terms or lower interest rates. Be sure to shop around and compare your options. 

Peer-to-peer lending loan

How it works: Peer-to-peer (P2P) lending connects you directly with individual lenders who may be willing to loan you funds. The loans are typically unsecured and are managed by the platform, making the process hassle-free.

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Loan terms and interest rates are similar to standard personal loans—the better your credit score, the more competitive options you'll have. However, you can get a P2P loan with less-than-great credit. 

• Requirements: Generally, verification of identity and income—credit score is considered but may be less stringent. 
• Considerations: The application and approval process can be lengthy, and there’s no guarantee a lender will be willing to work with you. 

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Common peer-to-peer lending marketplaces are Prosper, Upstart, Funding Circle, and LendingClub

Payday loan

How it works: Payday loans are small-dollar, high-interest loans that are not credit score-dependent but based on income. A lender will allow you to borrow a portion of your paycheck in advance, typically $50 to $1,000. You then repay the loan within 30 days or on your next payday. 

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Treat this section more as a warning than a viable option for your needs. When seeking low-credit lenders, you’re likely to come across online payday lenders. While this seems like an easy solution, in reality, interest rates can be as high as 300% APR, making it tough to repay the loan. Outrageous interest rates and excessive late payment fees create a vicious debt cycle for many.  

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Payday loans should be considered a very last resort. 

• Requirements: Lenders expect sufficient income, paystubs to verify stable income, and a bank account. 
• Considerations: Payday loans are considered predatory—and even illegal in some states. Do your due diligence to find other solutions or carefully vet lenders if you’ve exhausted all your options. 

Payday alternative loan

How it works: If you find yourself tempted by a payday loan, consider a payday alternative loan (PAL) instead—a safer and more affordable option. Unlike traditional payday loans, PALs are offered by federal credit unions, which ensures better regulation. 

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You can expect a longer repayment term and a lower interest rate, capped at 28% APR. Additionally, lenders don't allow you to access more cash until the original loan is repaid, helping safeguard you from vicious debt cycles. Depending on the credit union, you can borrow anywhere from $500 to $2,000. 

• Requirements: You must be a member of the credit union and have sufficient income to qualify. 
• Considerations: Not all credit unions offer PALs, so you'll have to shop around. 

Title loan

How it works: You use your vehicle title as collateral and can access a percentage of its value in cash. Most lenders will try to sell you on the fact that you can continue to drive/keep your car while repaying the loan. While this is true, the repayment term is short, meaning you often have 30 days or less to pay or risk losing your vehicle. 

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Title loans are another type of loan that demands caution. While they offer quick funding and require no credit check, rates can be roughly 25% APR per month or 300% annually. 

• Requirements: You’ll need a vehicle in good condition that you own outright. 
• Considerations: High interest rates and fees will likely cause you to take on more debt to keep your vehicle and pay off the loan—thus initiating a cycle of debt. 

Pawnshop loan

How it works: A pawnshop loan allows you to use valuable items you own as collateral for borrowing. The pawnshop will appraise your items and offer a loan amount based on the value. You can only reclaim the collateral by repaying the loan with interest within the agreed period. 

• Requirements: To borrow, you’ll need valuables such as jewelry, electronics, or instruments, a government-issued  ID, and proof of ownership of the item.
• Considerations: Although a pawnshop loan can give you cash as quickly as one business day, you'll be on the hook for high interest rates and storage fees. 

If you have a retirement account

401(k) loan

How it works: 401(k) loans are secured loans that allow you to borrow up to a set percentage of your retirement savings. You can generally access 50% of your vested account balance or $50,000, whichever is less. The loan and interest must be repaid within five years back into your 401(k) account. 

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While borrowing from yourself may feel like a no-brainer, it's important to remember that you're reducing the growth potential of your savings. If you don't make catch-up contributions in the future, you risk a serious retirement shortfall. 

• Requirements: You must have a 401(k) account and an employer or plan sponsor who allows for loans. 
• Considerations: Borrowing against your future financial security is a risk—it’s best to consult a financial advisor before proceeding. 

401(k) hardship withdrawal

How it works: A 401(k) hardship withdrawal is not a loan but may be worth considering if you qualify. It allows you to take from your retirement savings in the event of “immediate and heavy financial need”—best of all, you’re not on the hook for repayment. 

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Qualifying reasons include expenses to prevent foreclosure or eviction, medical bills, funeral or burial costs, education-related expenses, homebuying costs for a primary residence, and damage to your property caused by natural disasters. You can typically withdraw enough to cover the hardship if you meet the requirements. 

• Requirements: You’ll need an eligible 401(k) plan and a qualifying hardship. 
• Considerations: Not having to repay what you leverage is great for short-term relief, however, you are still losing out on retirement growth. It’s crucial to carefully consider your short- and long-term needs to determine if a hardship withdrawal is right for you.

If you own a home

Home equity is a valuable asset—if you own 20% or more of your home, let your property work for you. 

Home equity investment 

Traditional financing options like home equity loans and HELOCs require good to great credit, which makes them nearly inaccessible to homeowners with bad credit. However, home equity investments (HEIs) have a minimum credit score requirement of 500 and no income requirements—plus, they’re not loans, so you’re not taking on debt.  

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How it works: You receive a single lump sum payout in exchange for a share of your home’s future appreciation. The amount is based on how much equity you own and your home’s value—homeowners can borrow up to $500K. There are no monthly payments. Instead, the investment is repaid anytime during a flexible 30-year term with your cash reserves, or when you sell or refinance the home. 

• Requirements: You must own a home in an eligible zip code, have sufficient equity, and have a credit score of 500 or higher. 
• Considerations: Like other equity financing products, you’ll have appraisal fees and closing costs to pay.

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You can prequalify and get an offer without impacting your credit score or needing to complete the application. 

If you own a business 

Business loans for bad credit borrowers can be challenging to find—but not impossible.

Small business loans

How it works: Like personal loans, small business loans offer a lump sum of cash upfront, which you repay over a set period, typically with a fixed interest rate. The best rates and terms are offered to good credit borrowers. With less-than-great credit, you can expect a rate on the higher end—comparable to other loans. 

• Requirements: You’ll need proof of income and ability to repay the loan, your business financials, and possible collateral to qualify.
• Considerations: Small business loans have origination fees, and repayment begins almost immediately. 

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Reputable low-credit lenders include Fundible, Fora Financial, Paypal, and Uncapped. 

Working capital loan

How it works: Working capital loans are short-term loans designed to help you cover day-to-day operational expenses—such as payroll, rent, or inventory purchases.

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The loan offers swift access to funds, and what's more, approval is not solely reliant on your credit score.

• Requirements: You'll need an established business (for at least six months to a year), proof of consistent revenue and cash flow, and a credit score of 550 or higher.
• Considerations: Working capital loans help ensure your business continues to operate smoothly, but they have high interest rates and short repayment terms compared to traditional loans. 

Special considerations: nonprofits and government programs 

If you’re in a dire situation, more debt will only worsen your problem. If you are unemployed or navigating income volatility, consider exploring:

• Housing assistance: Programs are available through the U.S. Department of Housing and Urban Development (HUD), local housing authorities, and Habitat for Humanity that help individuals and families with rental assistance and foreclosure prevention.
• Utility assistance: The Low Income Home Energy Assistance Program (LIHEAP) offers programs to help low-income households pay for essential utilities such as electricity, gas, water, and heating. 
• Emergency financial assistance: Consider the Salvation Army, local community action agencies, and Emergency Solutions Grants (ESG) to connect with a nonprofit or agency offering emergency grants or loans to cover unexpected expenses like medical bills, funeral costs, or car repairs.

Is taking out a loan with poor credit a good idea?

When faced with financial hardship and a credit score of 500, taking out a loan can be a double-edged sword. On the one hand, you'll find relief. On the other, you'll tie up your monthly cash flow and pay a hefty amount of interest. 

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If your situation is not urgent, improving your creditworthiness could offer more loan options and better terms and rates in the future. 

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To get started improving your ability to borrow: 

• Check your credit report and dispute any errors or discrepancies to improve your credit score. You can get a free credit report here. 
• Reduce your debt-to-income ratio by paying down more debt first or increasing your income. 
• Improve your credit history by making more on-time bill payments and reporting your utility payments. 
• Limit hard inquiries on your credit report to avoid lowering your score. 

The bottom line

Navigating the borrowing world with a credit score of 500 can be challenging, especially when you need cash for emergencies or important expenses. 

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While traditional lenders have stringent requirements that can be tough to meet, shopping around can help you find lenders better suited for your situation. 

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If you have collateral, explore secured loans that can offer you a reprieve from high interest rates. If expenses can wait, take the time to improve your situation and the opportunities available. No matter your choice, be sure to do your due diligence before applying and weigh the short and long-term impact on your finances.