Where To Get A Bad Credit Loan

If you’re looking for a place to get a loan with bad credit, there are several financial institutions to choose from. Online lenders, community banks and credit unions all offer bad credit loans and work with borrowers across the credit spectrum.

That said, you should try your best to avoid certain types of bad credit loans, such as payday and car title loans, because they come with sky-high annual percentage rates (APRs) and fees. Fortunately, some credit unions and other types of lenders offer cheaper alternatives.

Best places to get a loan with bad credit

The best bad credit loans are offered by online lenders, community banks and local credit unions. When starting your research process, look into the following institutions to avoid loan scams and predatory loans, like those offered by payday lenders.

Online lenders

Best for: Those who prefer to get a loan without visiting a brick-and-mortar location.

Several online lenders offer personal loans for applicants with lower credit scores. The application process is generally quick, and you should know your approval status within minutes of applying. If you’re approved, funds may be disbursed as soon as the same day — although it usually takes one to three business days.

Given that there are a seemingly endless number of lenders, it can be easy to get overwhelmed. Online marketplaces like Bankrate list reputable lenders offering the best bad credit loans and can help you narrow your search.

Start by getting prequalified with multiple lenders and comparing rates and terms. Prequalifying allows you to gauge your eligibility and preview your potential APR without impacting your credit.

Banks or credit unions

Best for: Those who wish to bank locally, qualify for a credit union membership or want to take out a payday alternative loan.

Some local community banks will consider lending to people with bad credit — and they may offer competitive personal loan rates. Still, it can be difficult to get approved because most lending decisions are based solely on your creditworthiness and income.

If you strike out at your local bank, you may have more luck with a local credit union — provided you meet all the membership requirements. A personal loan from a credit union may be easier to qualify for than community banks, but you must become a member to borrow. Most have fairly simple membership requirements based on occupation, association or area of residence.

Some federal credit unions offer payday alternative loans (PALs) geared toward borrowers with bad credit. PALs are small-dollar loans with a rate cap of 28 percent, compared to payday loans, which can have APRs as high as 400 percent.

Learn more: How to choose the best bad credit loan company

Pay advance apps

Best for: People with steady paychecks who need a quick boost to their bank account.

Pay advance apps are designed to help you access your paycheck earlier than your expected deposit date. Due to the nature of this finance method, you’ll need to have a steady source of income. Regardless of your credit score, the more predictable your paycheck is, the more likely you will qualify for an advance.

A paycheck advance isn’t a loan, and there is no interest charged. However, these apps may charge subscription fees, express funding fees or request optional tips. The fees may seem small, but remember that a $15 fee for a $500 cash advance is equivalent to an APR of nearly 36 percent.

On top of any potential fees, keep in mind that you’ll be drawing from your future income when you use a pay advance app. This means you’ll receive a smaller paycheck on your next payday, potentially setting yourself up to need to borrow again in the future.

Bad credit loans to avoid

Some bad credit loans can be predatory with unreasonably high interest rates and extremely tight payment timelines. These options should only be used as a last resort.

Payday loans

Payday loans are small, short-term financial options, typically offering up to $500. It’s easy to get approved for these products even if you have bad credit, but there are significant drawbacks: You’ll pay a hefty APR, sometimes over 400 percent, and only have a short window to repay what you owe.

One challenge borrowers may face with a payday loan is paying back the loan by the due date, which is typically the next payday. Unfortunately, this often leads to even more fees and a perpetual high-interest debt cycle that can be very challenging to end. Despite their convenience, payday loans should only be considered after exhausting all other options.

Learn more: Payday loans vs. installment loans: What’s the difference?

Title loans

Car title loans are tailored for borrowers with poor credit scores and are relatively easy to qualify for because they use your car as collateral. You must own your car in full — meaning you don’t have an auto loan — to qualify.

In most cases, you’ll make equal monthly payments over a set period, usually up to six months. This type of loan is risky since it uses your vehicle to secure it. If you fall behind on your payments, your lender could repossess your car. And although the APR may be lower than a payday loan, it is still much higher than other loans for bad credit.

High-interest installment loans

Generally, a 36 percent APR is seen as the dividing line between an affordable loan and an unaffordable one. Some installment lenders impose APRs of 200 percent or more on borrowers with bad credit.

For example, OppLoans features a maximum APR of 195 percent, while an APR from RISE may be as high as 299 percent. While these loans are less risky than a payday loan because of the extended repayment period, you’ll pay a hefty price.

Let’s say you need to borrow $3,000, and you’re approved for a loan with an APR of 199 percent. Your monthly payment will be $243, and over the 18-month repayment term, you’ll pay $6,490 in interest in addition to the initial loan amount. Your $3,000 loan will cost a whopping $9,490 in the end.

How to qualify for a loan with bad credit

Traditional personal loans may be hard to qualify for, but getting a personal loan with bad credit is possible. To put yourself in a good position, check lender requirements and consider waiting if you can.

• Improve your credit. If your borrowing needs aren’t urgent, focus on improving your credit score. Enhancing your credit profile before applying can boost your chances of approval and secure you a better interest rate.
• Apply with a cosigner or co-borrower. Asking a creditworthy cosigner or co-borrower to apply with you can improve your eligibility and help you qualify for an affordable interest rate. But keep in mind that if you mismanage the loan, it will negatively affect their credit and potentially damage your relationship.
• Consider a secured loan. Secured loans are backed by collateral, such as a savings account or property, reducing the risk to the lender. This makes secured loans easier to qualify for, and this form of financing typically has significantly lower rates.
• Shop around. To secure the best rate and terms possible, take the time to compare at least three different lenders, as offers can vary significantly. While researching personal loan lenders, pay close attention to rates, terms and fees to get the best deal possible for your financial situation.

Bottom line

Bad credit loans can help you get out of a financial bind, but they are often more costly than personal loans, so borrow with caution.

Familiarize yourself with each option and the benefits and drawbacks of bad credit loans, and get quotes from at least three lenders to find the most competitive loan offer. Depending on the loan terms, you could be better off cutting expenses to free up funds, applying for a credit card or finding other bad credit loan alternatives.

Frequently asked questions about bad credit loans

• What types of bad credit loans are available?
  

  Common types of bad credit loans include traditional personal loans, loans with a cosigner, secured loans and payday advances.

• How do I qualify for a bad credit loan?
  

  Qualifying for a bad credit loan depends on the lender and the type of loan you are applying for. Generally, you will need to have a steady source of income and may need to provide collateral or a cosigner.

• Are there any risks to getting a bad credit loan?
  

  Yes, there are risks associated with bad credit loans. Borrowers are usually charged higher fees and face a higher average interest rate. Some loans may also require collateral. It’s important to be aware of the costs associated with the loan and have a plan to make timely payments before you apply.