Personal loans with bad credit are available, but they come with higher interest rates and stricter terms

You can borrow money with a low credit score. Banks and lenders do look at credit history, but they also look at income, employment, and whether you have collateral or a co-signer. The trade-off is real: lenders charge higher interest rates to offset the risk, so you will pay more in interest over the life of the loan. A personal loan with bad credit might cost you 25% to 36% annually, compared to 6% to 12% for someone with good credit.

The path forward depends on what you can offer a lender. If you have a steady job and can show recent paychecks, you have leverage. If you own a car or savings account, you can use that as collateral. If you have someone willing to co-sign, that person's credit score becomes part of the picture. Each of these changes what lenders will consider.

Key Takeaways

  • Banks, credit unions, and online lenders all offer personal loans to people with bad credit, but interest rates and fees vary widely by lender and your specific situation.
  • A co-signer with good credit or collateral you own can lower your interest rate, sometimes significantly.
  • Secured loans (backed by collateral) typically have lower rates than unsecured loans, but you risk losing the collateral if you miss payments.
  • Comparing offers from at least three lenders before you borrow lets you see the real cost — the total interest and fees you will pay, not just the interest rate.

Where to borrow: banks, credit unions, and online lenders

Traditional banks are harder to work with if your credit is low. They have strict lending standards and often turn down applicants with scores below 620. If you have a checking or savings account at a bank, call and ask whether they offer personal loans to existing customers with lower credit scores — some do, and existing customers sometimes get better terms.

Credit unions are often more flexible. You must be a member to borrow, but membership is usually open to anyone in a specific area or profession. Credit unions look at the whole picture: your job, your savings history with them, whether you pay bills on time. They also tend to charge lower interest rates than online lenders. To find a credit union near you, search the CO-OP Network or Alliant Credit Union's locator.

Online lenders specialize in lending to people with bad credit. Companies like Upstart, LendingClub, and OppFi work with applicants whose credit scores are 580 or lower. The process is fast — sometimes you get an answer in minutes — but the interest rates are high. Online lenders also charge origination fees (typically 1% to 10% of the loan amount), which are deducted from what you receive.

How a co-signer or collateral changes your offer

A co-signer is someone who promises to repay the loan if you do not. The lender looks at the co-signer's credit score and income, not just yours. If your co-signer has good credit, the lender may offer you a lower interest rate — sometimes 5 to 10 percentage points lower. The catch: if you miss a payment, the lender goes after the co-signer. This damages both your credit and theirs, and it can strain your relationship.

A secured loan is backed by something you own — a car, savings account, or certificate of deposit. You pledge the asset as collateral. If you stop paying, the lender can take it. Because the lender has collateral to recover, they charge lower interest rates on secured loans than unsecured ones. A secured personal loan might cost 15% to 25% annually instead of 30% to 36%. The risk is real, though: you could lose your car or your savings.

What lenders look at besides your credit score

Your credit score is one number. Lenders also pull your full credit report, which shows payment history, how much debt you carry, and how long you have had credit accounts. A low score with a recent on-time payment history looks better than a low score with recent missed payments.

Income matters more than you might think. Lenders want to see that you earn enough to repay the loan. You will need to provide recent pay stubs (usually the last two months) or tax returns. Self-employed people should bring two years of tax returns. Some online lenders also accept bank statements as proof of income. Employment history also counts — lenders prefer to see you in the same job for at least six months, though some will work with you if you recently changed jobs in the same field.

Debt-to-income ratio is what lenders calculate by dividing your total monthly debt payments by your gross monthly income. If you earn $3,000 a month and pay $900 toward existing debts, your ratio is 30%. Most lenders want to see this below 43%, though some will go higher. A new personal loan payment adds to this number, so if you are already near the limit, you may not may have access to for the amount you want.

Comparing offers and understanding the real cost

When you get an offer, you will see an interest rate and an APR (annual percentage rate). The APR includes the interest rate plus fees, so it is the more honest number. A loan with a 30% interest rate and a 5% origination fee has an APR higher than 30%.

The real cost is the total interest and fees you will pay over the life of the loan. A $5,000 loan at 30% APR over three years costs you about $2,400 in interest alone. Over five years, it costs about $4,100. The longer you stretch the loan, the more interest you pay. Use a loan calculator (most lenders have one on their website) to see the total cost at different loan terms.

Get offers from at least three lenders before you decide. Each lender pulls your credit report, which causes a small, temporary dip in your score, but multiple pulls within 14 to 45 days (depending on the credit bureau) count as one inquiry. Compare the APR, the origination fee, any prepayment penalty (some lenders charge you for paying off early), and the monthly payment. Write down the total amount you will pay back, including all interest and fees.

Red flags and what to avoid

Payday loans and title loans are not personal loans. They charge much higher rates — often 400% APR or more — and are designed to trap you in a cycle of borrowing. Avoid them.

Be wary of lenders who may provide approval or ask for an upfront fee before you borrow. Legitimate lenders do not charge money before they lend. If a lender asks you to pay a fee to "check your may be able to access" or "reserve your loan," that is a scam.

Avoid lenders who do not clearly disclose the APR, origination fee, or prepayment penalties. If you cannot find this information on their website or in the loan agreement, ask before you sign. If they will not tell you, move on.

What happens after you borrow

Once you receive the loan, you make monthly payments. Set up automatic payments from your bank account if you can — this ensures you never miss a due date, and some lenders offer a small interest rate discount (usually 0.25%) for autopay. Missing a payment damages your credit further and can trigger late fees.

Some personal loans let you pay off early without penalty. If yours does, paying extra toward the principal each month saves you interest. If your loan has a prepayment penalty, the math changes — you may be better off sticking to the regular payment schedule.

Frequently Asked Questions

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

Most banks want a score of 620 or higher, but credit unions and online lenders work with scores as low as 580 or below. Your score is one factor; lenders also look at income and employment. Even with a score below 580, you may find a lender, though the interest rate will be high.

Can I get a personal loan without a credit check?

No legitimate lender skips a credit check. Some lenders do a "soft pull" that does not affect your score, but they still look at your credit history. If a lender promises no credit check, it is likely a scam or a payday lender charging predatory rates.

How long does it take to get approved and receive the money?

Online lenders can approve you in minutes and deposit money within one to three business days. Banks and credit unions usually take three to seven business days. The speed depends on how quickly you provide documents and whether the lender needs to verify your income or employment.

Will getting a personal loan hurt my credit score?

The credit inquiry when you explore causes a small, temporary dip. Taking out the loan itself may lower your score slightly because it increases your total debt. But making on-time payments rebuilds your score over time. Missing payments, on the other hand, damages it significantly.

What if I cannot afford the monthly payment?

Contact your lender before you miss a payment. Some lenders offer deferment (skipping a payment) or forbearance (temporarily lowering your payment). These options usually extend your loan term and cost you more in interest, but they keep you from defaulting. Missing payments without contacting the lender leads to late fees, higher interest rates, and credit damage.