When you’re in a financial bind and need fast cash, a personal loan may come to mind. And for several good reasons, starting with the straightforward application process and rapid funding times. Plus, personal loans have far lower rates than payday loans, payday loan alternatives, title loans, other unsecured debt products designed to get you funding right away.
But what if your credit score is in the trenches? Maybe you had a few financial missteps in the past that continue to haunt you despite turning a new leaf.
The good news is you can still secure a personal loan with less than perfect credit. Read on to learn how.
Personal Loan Options
Before you start searching for loan products, it’s important to know what types of personal loans are out there.
Secured Personal Loans
Secured personal loans are debt products that are backed by some form of collateral. This could be a home, automobile, or another asset of value that you own.
These types of loans are common for consumers with credit challenges because they pose less of a risk to the lender. How so? Well, in the event you default on the loan, the lender can seize your collateral and sell it to recoup the funds you owe and minimize their losses. For example, if you had an auto loan, your collateral would be your car. If you default on your loan, the bank would repossess your car.
And even if your credit score is really low, federal law prohibits lenders from assessing an interest rate that exceeds 36 percent. This figure is a bit steep, but it beats the exorbitant APRs on payday and title loans.
Unsecured Personal Loans
Although secured personal loans may be easier to obtain with poor credit, there are scores of lenders offering unsecured personal loans that cater to consumers with bad credit. Not only are these loans available without putting collateral on the table, but the interest rate is also capped at 36 percent, per federal law.
How Bad Is Your Credit Score?
Wondering what constitutes a bad credit score with regards to personal loans? It varies by lender but anything lower than 620 typically places you in the “subprime borrower” category. This means there may be funding opportunities available, but you can expect high-interest rates. And if your score falls below 580, you may find it practically impossible to obtain an unsecured personal loan, although a creditor with secured personal loan products may be able to assist.
What You’ll Need
When applying for a personal loan, the lender will request income documentation once a credit offer has been extended in order to finalize the contract. To expedite the process, you’ll want to gather the following:
- A copy of your driver’s license or state identification card
- A copy of your last pay stub
- 1099 forms from the prior tax year (if self-employed)
- A copy of your tax return (if self-employed)
How to Get Approved for a Personal Loan With Bad Credit
Ready to start the application process? Once you’ve gathered all the required documentation, follow the steps below:
Step 1: Check Credit Score
While the lender will want to know if you have sufficient income to make the monthly payments on the loan, what’s even more important in their eyes is your creditworthiness. Simply put, what’s the risk of default?
Borrowers with lower credit scores usually receive loan offers with higher APRs to help lenders hedge against the risk of default. So it’s worthwhile to take a peek at your credit report and credit score to see where you stand.
But don’t get too hung up on your score. What matters most are the contents found in your report as they determine what the three-digit number will be.
Step 2: Dispute Errors
If you notice errors while reviewing your credit report, file disputes to rectify them right away. According to the Consumer Financial Protection Bureau, 1 in 5 credit reports contains errors, so your score could suffer for no fault of your own. And by disputing errors, you’ll have the best shot at getting approved with a decent interest rate.
Step 3: Shop Around for Lenders
The best way to shop for bad credit personal loans is by using an online marketplace, like BadCreditLoans.com, MoneyMutual, PersonalLoans.com. You’ll be able to input specific criteria search for options across the web at the finger.
Also, consider exploring a peer-to-peer lending network. They comprise of a network of individuals that have agreed to lend their personal funds to prospective borrowers for a hefty return in the form of interest paid on the loan. And since the loans originate from an individual and not a financial institution, lower credit scores are often accepted as long as the borrower agrees to pay a higher interest rate.
Prefer to secure a loan offline? Credit unions and community banks in your local area may be another viable option as they have less stringent qualification criteria and are more inclined to work with credit-challenged consumers than big-box banks.
Step 4: Submit the Application
This step can usually be done online in a few minutes of your time. Lenders issue most approvals away and all you have to do is upload the supporting documentation requested by the lender to receive funding.
Best Bad Credit Loan Options
Below are the top bad credit personal loan providers:
Avant offers unsecured personal loans of up to $35,000 to credit challenged consumers. You’ll need a credit score of at least 600 to qualify, and you can expect to receive an APR between 9.95 and 35.99 percent. (The lower your credit score, the higher the rate).
If approved, you’ll receive the loan proceeds within one business day and have between two and five years to repay the loan. Even better, you will not incur any prepayment penalties should you pay the loan off early.
Interested in a personal loan from Avant? Complete the online form to determine if you pre-qualify, and if so, for which loan terms. There’s no impact to your credit score, and you’re not obligated to move forward with the formal loan application.
Lending Point is another direct lending option for consumers with less than perfect credit. They offer unsecured personal loan products in 34 states and the District of Columbia, ranging from $2,000 to $25,000.
While they don’t have a strict credit score requirement, a bulk of their customers have credit scores at least in the low 600s. You should also know that you need annual earnings of $20,000 or more to qualify for consideration.
They offer next business day funding, and the loan term you receive will depend on the loan amount and your creditworthiness. To check your loan options with no impact to your credit score, visit their website and complete the brief questionnaire. If you qualify, prospective loan offers will be presented to you right away and you’ll be given the option to move forward with the application process.
NetCredit is another direct lender that caters to those with low credit scores. Their personal loans are unsecured and range from $1,000 to $10,000 with flexible terms and interest rates.
But what makes them stand out from other lenders in the industry is their willingness to go the extra mile to help customers with credit challenges get the fast cash they need. Not only do they offer a streamlined application process designed to get you funded within one business day, but they also provide free educational resources designed to help you boost your credit score for the duration of the loan.
Like other lenders, NetCredit also allows you to check your loan options via their website without hurting your credit score. It only takes five or so minutes of your time and funding decisions are issued in 60 seconds or less.
Searching for a much smaller personal loan? NorthCash extends small bad credit personal loans to consumers. Their loan amounts start at $300 and are capped out at $1,500.
You can inquire by calling 1-855-333-6570 or requesting a loan offer online. If approved and the loan application is finalized the same day, funds will be deposited into your bank account as soon as the next business day.
OppLoans is a direct lender that analyzes alternative credit data when evaluating your application to issue a decision. Simply put, your credit score plays a role, but it’s not necessarily a deal breaker when attempting to secure a personal loan.
Their offerings and unsecured and range from $1,000 to $4,000. Depending on your creditworthiness, your APR will be between 99 and 199 percent. Generally, the better your credit score, the lower the APR.
Should you choose to accept a loan offer, your repayment term will not exceed 36 months. Of course, you have the option to get pre-qualified online with no effect to your credit score, and there’s no obligation to accept the offers presented to you.
If Your Application Is Denied…
Return to the drawing board and:
- Reach out to the lender. The digital underwriting system may have issued an automatic denial based on information found in your credit report. But by requesting a manual review by an underwriter, there’s a chance the decision can be overturned and you’ll get approved.
- Work on rebuilding your credit. Do you have a little time on your hands before you need to take out the personal loan? Consider working on the areas of your credit profile that could use help. Also, sign up for a Self Lender credit builder loan. It doesn’t cost much to get started, and you could see results in as little as three months.
But if you’re desperate, get a cosigner with a stellar credit history to strengthen your approval odds. And if all else fails, you can always borrow from friends and family.
The Bottom Line
A low credit score doesn’t mean you won’t qualify for a personal loan. With a little legwork and patience, you could score a good deal on a loan product that allows you to access the funds you need right away instead of settling for a high-interest payday or title loan.