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 lock you out of personal loans entirely. Banks, credit unions, and online lenders all offer loans to people with credit scores below 620, though the terms are different from what someone with good credit would receive. The main trade-off is higher interest rates — sometimes 25% to 36% annually instead of 6% to 12% — and smaller loan amounts.

The lenders willing to work with bad credit fall into two categories: traditional lenders that have specific bad-credit programs, and online lenders that specialize in this market. Credit unions often have the lowest rates for bad-credit borrowers, even if you have never banked there before. Online lenders move faster but charge more. Banks rarely lend to people with scores below 580 unless you bring a co-signer.

Key Takeaways

  • Credit unions typically offer the lowest interest rates for bad-credit loans, sometimes 5 to 10 percentage points lower than online lenders.
  • Online lenders fund loans in one to three business days but charge 25% to 36% interest, meaning you pay significantly more over the life of the loan.
  • A co-signer with good credit can lower your interest rate and increase the amount you can borrow, but they are legally responsible if you do not pay.
  • Secured loans (backed by collateral like a car or savings account) have lower rates than unsecured loans, but you risk losing the collateral if you default.
  • Loan amounts for bad-credit borrowers typically range from $1,000 to $10,000, though some lenders go higher.

How interest rates change with a low credit score

Your credit score is the main number a lender looks at when deciding your rate. A score of 300 to 579 is considered very poor; 580 to 669 is fair. The lower your score, the higher the rate you will pay, because the lender is taking on more risk that you will not repay.

The difference is substantial. A $5,000 loan at 10% interest costs you about $1,380 in total interest over five years. The same loan at 30% interest costs you about $4,150 in total interest. That extra $2,770 is the price of bad credit. Online lenders and payday loan alternatives typically charge the highest rates; credit unions and banks charge less.

Some lenders also look at your income, employment history, and existing debts, not just your score. If you have steady income and low debt relative to your income, a lender may offer you a better rate even with a low score.

Credit unions versus online lenders for bad credit

Credit unions are non-profit organizations owned by their members. They have more flexibility than banks and often lend to people with scores as low as 500. Rates at credit unions for bad-credit loans typically range from 9% to 18%, and the approval process takes three to five business days. You do not need to be a member to join most credit unions — you usually just need to live in their service area or work in a certain industry.

Online lenders move faster but charge more. They can fund a loan in one to three business days, which matters if you need money urgently. Interest rates range from 25% to 36%, sometimes higher. Online lenders also tend to have looser income requirements and do not pull your credit as hard, so the process process feels easier. The trade-off is that you pay significantly more over time.

Banks rarely lend to people with bad credit unless you have a long history with them or bring a co-signer. If you have a checking or savings account at a bank, call and ask whether they have a bad-credit personal loan program. Some do, and existing customers sometimes get better terms.

Using a co-signer to lower your rate

A co-signer is someone with good credit who agrees to repay the loan if you do not. Adding a co-signer can lower your interest rate by 5 to 10 percentage points and increase the amount you can borrow. A co-signer does not put money down — they straightforward sign the promissory note alongside you.

The catch is that the co-signer is legally responsible for the full loan balance if you miss payments. Late payments or default will damage their credit score, not just yours. Lenders will pursue the co-signer for payment if you stop paying. This is why co-signers should be people you trust completely — usually a parent, spouse, or close family member — and why you should be honest with them about the risk.

Not all lenders allow co-signers. Credit unions and traditional banks usually do. Many online lenders do not. Ask before you explore.

Secured loans and collateral

A secured loan is backed by collateral — an asset you own that the lender can take if you do not repay. Common collateral includes a car, savings account, or certificate of deposit (CD). Secured loans have lower interest rates than unsecured loans because the lender's risk is lower: they can sell the collateral to recover their money.

For someone with bad credit, a secured loan might be the only option, or it might be the cheapest option. Interest rates on secured bad-credit loans can be as low as 8% to 15%, compared to 25% to 36% for unsecured loans. The downside is obvious: if you default, you lose the collateral. If you use your car as collateral and stop paying, the lender repossesses it.

A credit-builder loan is a type of secured loan designed specifically to improve your credit. You borrow a small amount (usually $500 to $1,000) and the lender holds the money in a savings account as collateral. You make monthly payments, and after you repay the loan, you get the money back. The payments are reported to credit bureaus, so on-time payments build your credit history. Interest rates are typically 15% to 20%, and the real benefit is the credit improvement, not the loan itself.

What lenders look at besides your credit score

Lenders use your credit score as a starting point, but they also review other information. Your debt-to-income ratio — the percentage of your monthly income that goes to debt payments — matters significantly. If you earn $3,000 a month and already pay $1,500 toward other debts, your ratio is 50%, which is high. Most lenders want to see a ratio below 40%, and some will not lend above 50%.

Employment history and income stability also factor in. Lenders want to see that you have held your current job for at least six months, though some require two years. If you are self-employed, you will need to provide tax returns or bank statements to prove income. Income does not have to be high — lenders work with people earning $20,000 a year — but it has to be verifiable and consistent.

Some lenders also check your banking history. If you have overdrafted your account frequently or have a history of bounced checks, that can hurt your chances or raise your rate. Conversely, a long history of on-time deposits and no overdrafts can help, even if your credit score is low.

Comparing loan offers and avoiding predatory lenders

When you receive loan offers, compare the annual percentage rate (APR), not just the interest rate. The APR includes the interest rate plus fees, so it shows the true cost of borrowing. A loan with a 25% interest rate and $200 in fees might have an APR of 28%. Always compare APRs across lenders.

Watch for red flags that signal a predatory lender. Payday lenders and title loan companies charge 300% to 400% APR and are designed to trap you in a cycle of debt. Lenders that may provide approval without checking your credit, lenders that pressure you to decide quickly, and lenders that ask for upfront fees before funding are all warning signs. Legitimate lenders never charge an upfront fee.

Read the full loan agreement before signing. Look for prepayment penalties (fees if you pay off the loan early), balloon payments (a large lump sum due at the end), and variable interest rates (rates that can increase over time). Fixed-rate loans are simpler and safer: your rate and payment stay the same for the entire loan term.

Building credit while you repay

Taking out a personal loan and repaying it on time is one of the fastest ways to improve your credit score. Payment history makes up 35% of your credit score, so consistent on-time payments matter more than anything else. If you make every payment on time, you should see your score improve by 50 to 100 points within six to twelve months.

To maximize the credit-building benefit, set up automatic payments so you never miss a due date. Even one late payment can erase months of progress. Some lenders report to all three credit bureaus (Equifax, Experian, TransUnion); others report to only one or two. Ask the lender which bureaus they report to before you sign.

While you are repaying the loan, avoid opening new credit accounts or taking on new debt. New accounts lower your average account age and new debt raises your debt-to-income ratio, both of which can slow your credit improvement. Focus on repaying what you already owe.

Frequently Asked Questions

What credit score do I need to get a personal loan?

Most online lenders will work with scores as low as 580 to 600. Credit unions often lend to people with scores below 580. Banks typically require a score of 620 or higher, or a co-signer. Some lenders do not check credit at all, but they charge very high interest rates (30% to 50% APR).

Can I get a personal loan with no credit history?

Yes, but it is harder and more expensive. Lenders with no credit history see you as high-risk because they have no record of whether you repay debts. Online lenders and credit unions are more likely to work with you than banks. You may need a co-signer, or you may need to start with a credit-builder loan or secured loan to establish a history.

How long does it take to get approved for a bad-credit personal loan?

Online lenders typically approve and fund within one to three business days. Credit unions take three to five business days. Banks take five to seven business days. Some lenders offer same-day approval but fund the next business day. Speed varies by lender and how complete your process is.

What happens if I cannot repay the loan?

Missing payments damages your credit score further and can result in collection calls, wage garnishment, or a lawsuit. If the loan is secured, the lender repossesses the collateral. If you have a co-signer, the lender pursues them for payment. Contact the lender when ready if you think you will miss a payment — some offer hardship programs or payment deferrals.

Is a personal loan better than a payday loan for bad credit?

Yes. Personal loans have lower interest rates (typically 15% to 36% APR) and longer repayment terms (two to seven years), so your monthly payment is manageable. Payday loans charge 300% to 400% APR and are due in full within two weeks, which traps most borrowers in a cycle of rolling over debt. A personal loan is almost always the better choice.