Loans for bad credit: A guide

Having bad credit shouldn't stop you from getting a financial lifeline when you need it. Fortunately, there are various loans and options for individuals with less-than-great credit.  

Whether you're looking for unsecured or secured loans, understanding your options is crucial for making informed decisions. In this guide, we'll explore loans for bad credit to help you navigate your options.

Unsecured loans for bad credit

Personal loans

Personal loans are a standard option for people with bad credit since plenty of lenders are willing to work with a broad range of credit scores. You get a lump sum in exchange for fixed installments over a set term, usually 1 to 7 years. 

Since you're applying with less-than-great credit, you'll likely receive high interest rates and less favorable loan terms. So, while this can give you the cash you need, it's important to consider whether you can manage the monthly obligation. 

Credit unions, banks, and online platforms offer loans—be sure to shop around and prequalify to score the best terms and rates. 

Reputable online lenders include Moneylion, Avant, and LendingPoint. 

Payday loans

Payday alternative loans (PALs) are short-term loans offered by federal credit unions as a safer and more affordable option than traditional ones. Loan amounts are small, typically from $200 to $2,000, with repayment terms between one and 12 months. Interest rates are capped at 28%, which helps responsible borrowers avoid a vicious debt cycle. 

To qualify, borrowers must be a member of the credit union for at least one month, meet income requirements, and provide proof of employment. 

Peer-to-peer lending loans

If traditional lenders aren't a good fit for your needs, you can explore peer-to-peer lending. Various platforms will connect you directly with investors willing to fund loans—often at better rates and terms than traditional banks.

To get started, you apply for a loan on a P2P platform, and investors review your application. If approved, you get the cash you need in exchange for fixed payments.

Reputable platforms are Prosper, Upstart, and LendingClub. 

Secured loans for bad credit

Home equity loans

A home equity loan allows you to borrow against the equity in your home. It can be a good option for those who own property and want a larger loan amount.

You'll get a lump sum in exchange for fixed monthly payments over a 10 to 30-year term. Interest rates are more competitive than personal loans and credit cards—however, you'll have appraisal fees and closing costs to cover. The application process is also more thorough—taking weeks instead of days. 

You'll need at least 15% to 20% equity, stable income, and a credit score above 620 to qualify. However, qualifying for a home equity loan with bad credit is possible if you have enough equity.

The main risk of equity products is that failing to pay can result in foreclosure, so you'll want to be confident in your ability to repay the loan. 

401(k) loans

A 401(k) loan allows you to borrow money from your retirement savings penalty-free—no credit check required. 

You can borrow up to 50% of your vested account balance, up to a maximum of $50,000. You then repay the loan with interest—which is paid back to your account—through payroll deductions over a 5-year term. 

401(k) loans have various risks. For example, if you leave your job, you may be required to repay the loan in full. The most notable, however, is the potential for a serious shortfall in retirement if you can't make catch-up contributions. Weigh your options carefully, and consider consulting a financial advisor if unsure. 

Alternative options for bad credit individuals

Paycheck advance 

Paycheck advance platforms allow you to access a portion of your earned wages before payday. If you need to cover a short-term expense quickly, you can do so without a high-interest loan. 

The apps typically connect to your checking account, track income and work hours, and offer advances of up to a few hundred dollars. Eligibility requirements vary but often include consistent employment, direct deposit history, and a linked bank account. 

While payday advances can provide quick cash with no interest, they often charge fees or request optional tips—plus, frequent use could lead to long-term financial instability.

Reputable platforms include Chime, Dave, and Earnin.

Credit card cash advance

If you already have a credit card, a cash advance allows you to borrow money against your available credit limit. You can withdraw cash from an ATM or bank instantly using your card. The amount borrowed is then added to your credit card balance. 

Since you’re not opening a new account, there’s no credit check. However, this will affect your credit score since you’re increasing your utilization ratio. Cash advances also come with higher interest rates and may charge a fee of 3-5% of the amount withdrawn.

Home equity investment

A home equity investment (HEI) is another way to tap into your home wealth for cash. However, unlike home equity loans and HELOCs, there are no monthly payments and it won't increase your debt load. 

You get a lump sum payout in exchange for a share of the home's future appreciation. You then have a flexible 30-year repayment window. 

To qualify, you'll need sufficient equity and a credit score above 500—there are no income or debt-to-income requirements.

Like other equity financing tools, HEIs come with closing costs and fees. Defaulting after the 30-year term could also result in foreclosure. 

Prequalify with no impact on your credit score or commitment to continue here. 

401(k) hardship withdrawal

If you're facing a financial emergency, like medical expenses or preventing foreclosure, you may be eligible for a 401(k) hardship withdrawal. You won't need to repay the amount, but you'll owe taxes and a 10% early withdrawal penalty if you're under 59 and a half.

To qualify, you'll need an eligible plan and to demonstrate that you have a qualifying reason.

This solution, while viable, can seriously eat into your retirement savings. If you feel a 401(k) hardship withdrawal is necessary, consider consulting a financial advisor before proceeding. 

Final thoughts

Even with a bad credit score, financial relief is still within reach. Whether you're looking to qualify for a personal loan, home equity solution, or retirement loan, take the time to research each option and understand how repayment will fit your budget. Understanding the short-term benefits and risks will help you make the best choice for your financial situation and long-term stability.

Ready to tap into your home equity and accomplish what you need to? No monthly payments, just possibilities with a Home Equity Investment from Point.