Yes, you can get a personal loan with bad credit, but you will pay more and have fewer lenders to choose from
Bad credit does not automatically disqualify you from borrowing. Most lenders that work with lower credit scores use other factors alongside your credit history — your income, employment length, debt-to-income ratio, and whether you have collateral. The trade-off is real: interest rates are typically 2 to 10 percentage points higher than what someone with good credit would pay, and loan amounts are usually smaller.
The lenders willing to work with bad credit fall into three categories: credit unions, online lenders, and banks that offer second-chance products. Each has different requirements and costs. Credit unions often have the lowest rates but require membership. Online lenders move fastest but charge the most. Banks fall somewhere in between but may require an existing account or a co-signer.
Your actual options depend on your credit score range, how much you need to borrow, and whether you own something you can use as collateral. A score in the 580–669 range opens more doors than a score below 580, but even very low scores are not a complete barrier.
Key Takeaways
- Credit unions typically offer the lowest rates for bad-credit borrowers but require membership, which may take a few days to establish.
- Online lenders approve faster (sometimes same-day) but charge higher interest rates and may have hidden fees, so read the full loan agreement before accepting.
- Banks with second-chance loan programs may require you to have an existing account or a co-signer, but rates are usually lower than online lenders.
- Collateral (a car, savings account, or other asset) can lower your interest rate significantly, even with bad credit.
- Your debt-to-income ratio matters as much as your credit score — lenders want to see that you have room in your budget to make payments.
How credit unions work for bad-credit borrowers
Credit unions are member-owned financial institutions, and many have explicit programs for people rebuilding credit. They typically charge 1 to 3 percentage points less in interest than online lenders, and they are more likely to look at your full financial picture rather than just your credit score.
The catch is membership. You must join the credit union before you can borrow, and membership requirements vary — some are open to anyone in a geographic area, others require you to work for a specific employer or belong to a certain organization. Joining usually takes a few days and requires a small deposit (often $25 to $100) to open a savings account.
Once you are a member, you can ask about a credit-builder loan or a personal loan for members with lower credit scores. Some credit unions will lend to you even if your score is below 580, as long as your income is stable. Ask whether the credit union reports your payments to the three major credit bureaus — Equifax, Experian, and TransUnion — because that is how the loan helps rebuild your score.
Online lenders and what to watch for
Online lenders are the fastest route if you need money within days. Many will give you a decision in hours and fund the loan within one to three business days. They work with credit scores as low as 300 and do not require collateral or a co-signer in most cases.
The speed comes at a cost. Interest rates for bad-credit borrowers typically range from 25% to 36% annually, and some lenders charge more. Beyond the interest rate, watch for origination fees (usually 1% to 6% of the loan amount, deducted upfront), prepayment penalties (a fee if you pay off the loan early), and late fees. A lender might advertise a low rate but bury a 5% origination fee in the fine print, which effectively raises your real cost.
Before you accept an offer, read the full loan agreement and calculate your total cost: the monthly payment multiplied by the number of months, plus all fees. Compare that total across at least two lenders. Some online lenders report to credit bureaus and some do not, so ask whether your on-time payments will help rebuild your credit.
Bank second-chance loans and membership requirements
Many large banks now offer personal loans to customers with credit scores below 650. These loans sit between credit unions and online lenders in terms of cost and speed. Interest rates are usually lower than online lenders but higher than credit unions, and approval takes three to five business days.
The main requirement is that you have an existing account at the bank — checking, savings, or both. Some banks will waive this if you open an account at the time you explore, but that adds a day or two to the process. A few banks also require a co-signer (someone who promises to repay the loan if you do not) if your score is very low.
Ask your current bank whether they offer a second-chance personal loan program. If not, call three to five banks in your area and ask what credit score they require and what their rates are. Banks are required to disclose the annual percentage rate (APR) before you sign, so you can compare directly.
Using collateral to lower your rate
A secured loan is one backed by an asset you own — typically a car, savings account, or home. Because the lender can take the asset if you do not pay, they charge less interest. A secured personal loan with bad credit might cost 15% to 25% instead of 25% to 36%.
The risk is real: if you miss payments, the lender can seize the collateral. A car loan is the most common secured option, but you must own the car outright or have significant equity in it. A savings account loan lets you borrow against your own money, which sounds odd but actually works as a credit-builder — you make payments on your own savings, and the bank reports those payments to the credit bureaus.
Collateral is most useful if you need a larger loan amount or want to lower your monthly payment. If you only need $500 to $1,000, the savings from collateral may not be worth the risk.
What lenders look at besides your credit score
Lenders use credit scores as a shortcut, but they also examine your income, employment history, and existing debts. A stable job for two or more years, even at a modest salary, can outweigh a low credit score. Conversely, a high income with frequent job changes may raise red flags.
Your debt-to-income ratio is the total of your monthly debt payments divided by your gross monthly income. Most lenders want this below 40% to 50%. If you earn $3,000 a month and already owe $1,000 in car payments, credit cards, and student loans, a new $500 monthly loan payment would push you to 50%, and some lenders will decline. Calculate your own ratio before you explore — it tells you how much you can realistically borrow.
Lenders also look at whether you have a bank account and how you use it. A checking account with regular deposits and few overdrafts signals stability. A history of overdrafts or bounced checks raises concerns, even if your credit score is not the problem.
Comparing offers and avoiding common traps
Once you have offers from two or more lenders, lay them out side by side. Create a straightforward table with the loan amount, interest rate, monthly payment, total fees, and total cost over the life of the loan. The lowest interest rate is not always the best deal if one lender charges a higher origination fee.
Watch for bait-and-switch tactics. A lender might show you a low rate in an advertisement but offer you a much higher rate when you explore. This happens because the advertised rate is only available to borrowers with excellent credit. Ask the lender for a pre-qualification offer in writing before you formally explore — this shows the rate you are likely to receive without a hard credit inquiry.
Avoid lenders that pressure you to decide quickly or that ask for upfront fees before funding the loan. Legitimate lenders deduct fees from your loan proceeds or add them to your monthly payment. If someone asks you to wire money or buy gift cards before you get the loan, it is a scam.
How a bad-credit loan affects your credit score
Taking out a new loan temporarily lowers your credit score because it is a hard inquiry and a new account. Over time, on-time payments rebuild your score. Most lenders report to the credit bureaus monthly, so after six months of on-time payments, you should see improvement. After 12 to 24 months, your score may be high enough to refinance at a better rate.
This is why it matters whether the lender reports to the bureaus. An online lender that does not report your payments does nothing to rebuild your credit, even if you pay on time. Before you sign, ask the lender directly: "Do you report to Equifax, Experian, and TransUnion?" If they say no or are unclear, that loan is only useful if you need the money, not if you are trying to rebuild credit.
If you do refinance after your score improves, you will pay off the first loan early. Some lenders charge a prepayment penalty for this, so check the loan agreement before you sign. A credit union or bank is less likely to penalize early repayment than an online lender.
Frequently Asked Questions
What credit score do I need to get a personal loan?
Most online lenders work with scores as low as 300, though rates are highest in that range. Credit unions and banks typically require a score of 580 or higher, though some will go lower for existing members or customers. Your score is one factor — income and debt-to-income ratio matter too.
Can I get a personal loan without a credit check?
No legitimate lender skips a credit check entirely. Some lenders do a soft inquiry first (which does not affect your score) to pre-may have access to you, then do a hard inquiry when you formally explore. Be wary of lenders that promise no credit check — they are usually predatory.
Do I need a co-signer to get a bad-credit loan?
Not always. Online lenders and credit unions often lend without a co-signer. Banks are more likely to require one if your score is very low. A co-signer is legally responsible for the loan if you do not pay, so choose someone you trust and who understands the risk.
How long does it take to get approved for a bad-credit personal loan?
Online lenders can approve and fund within one to three business days. Banks typically take three to five business days. Credit unions may take a week if you are not yet a member. Speed varies by lender, so ask for a timeline when you explore.
What is the difference between a personal loan and a payday loan?
A personal loan is a fixed amount you repay over months or years with a set interest rate. A payday loan is a short-term loan (usually two weeks) with a very high fee that you repay in one lump sum. Payday loans are far more expensive and can trap you in a cycle of debt. A personal loan is almost always the better choice.