What Are Personal Loans for Bad Credit?
Personal loans are a form of credit that you can use for almost any purpose, from consolidating debt to covering an unexpected expense. When lenders refer to "bad credit" personal loans, they are typically talking about loans marketed to borrowers with lower credit scores, often below the range that traditional banks consider acceptable.
According to a Federal Reserve paper, personal loans are a significant part of U.S. consumer credit, reaching $356 billion at the end of 2022, which represented about 10 percent of all nonrevolving credit. The paper also notes that personal loans can be secured, meaning they are backed by collateral, or unsecured, meaning they are not.
Lenders that specialize in bad credit loans often offer higher interest rates and may charge additional fees to offset the risk of lending to borrowers with weaker credit histories. Understanding the basic structure of these loans is the first step to making an informed decision.
- Personal loans are typically installment loans, repaid in fixed monthly payments over a set term.
- Loan amounts can range from a few hundred to tens of thousands of dollars, depending on the lender and your qualifications.
- Interest rates and fees vary widely among lenders, so comparing offers is essential.
Sources: Federal Reserve Board, Bankrate
How Credit Scores Affect Loan Approval
Your credit score is a three-digit number that lenders use to assess your creditworthiness. The two most commonly used scoring models are FICO and VantageScore, and they have different ranges. Traditional lenders generally view a credit score below 600 as bad credit, according to Upstart, while Experian notes that a FICO Score below 580 is considered bad credit.
Your credit score plays a major role in whether you get approved for a personal loan and what interest rate you are offered. Borrowers with lower scores are seen as higher risk, so lenders may offer them smaller loan amounts, shorter repayment terms, or higher APRs to compensate.
However, a low credit score does not automatically disqualify you. Many lenders, such as Upstart, accept borrowers with scores as low as 300, and others like OneMain Financial have no minimum credit score requirement. Instead, these lenders may consider other factors like your income, employment history, and debt-to-income ratio.
- Credit score ranges: below 580 is generally considered bad credit, while below 600 is often viewed as subprime by traditional lenders.
- Lenders may use your credit score to set your interest rate and loan terms.
- Some lenders specialize in bad credit and have more flexible eligibility criteria.
Sources: Upstart, Experian, CNBC Select
Common Fee Types and Where to Verify Current Amounts
When you take out a personal loan, you may encounter various fees in addition to the interest you pay. One common fee is the origination fee, which lenders charge to process your loan application. For bad credit lenders, this fee can be up to 12% of the loan amount, according to Bankrate. Origination fees are typically deducted from the loan proceeds before you receive the funds, so you receive less than the full loan amount.
Other fees you might see include late payment fees, prepayment penalties (though not all lenders charge these), and returned payment fees. These fees are usually disclosed in your loan agreement, but they can add to the overall cost of the loan, so it is important to factor them into your decision.
Because fee structures and rates change frequently, you should always verify current amounts directly with the lender or through a trusted financial website. The Federal Reserve and your state's regulatory agency can also provide information on interest rate caps and consumer protections.
- Origination fee: often a percentage of the loan amount, potentially up to 12% for bad credit loans.
- Late payment fees: charged if you miss a payment, amount varies by lender.
- Prepayment penalties: some lenders may charge a fee for paying off your loan early.
- Always check the lender's official website or contact them directly for current fee information.
Sources: Bankrate, Federal Reserve Board
Secured vs. Unsecured Bad Credit Loans
Personal loans come in two main types: secured and unsecured. A secured loan is backed by collateral, such as a car or savings account. If you fail to repay, the lender can seize the collateral. An unsecured loan is not backed by collateral, so the lender's only recourse is to take legal action to collect the debt, which makes unsecured loans riskier for the lender.
Because secured loans reduce the lender's risk, they often come with lower interest rates and more favorable terms. However, you put your assets at risk. Unsecured loans, on the other hand, may be easier to qualify for with bad credit because the lender can't rely on collateral but may charge higher rates to compensate.
When considering a secured loan, be sure you understand what collateral you are putting up and the consequences of default. For many borrowers with bad credit, an unsecured personal loan might be the only option, but you'll need to compare offers carefully to find the most affordable one.
- Secured loans require collateral, which may result in lower rates.
- Unsecured loans do not require collateral, but may carry higher interest rates.
- Defaulting on a secured loan can lead to loss of the collateral.
Sources: Federal Reserve Board, Bankrate
Alternatives to Bad Credit Personal Loans
Depending on your situation, there may be alternatives to a traditional personal loan that are more affordable or easier to qualify for. Credit unions, for instance, are member-owned cooperatives that often offer more favorable terms. The Federal Reserve notes that credit unions are subject to an 18 percent interest rate ceiling for traditional personal loans, and they can offer payday alternative loans (PALs) with interest rates up to 28 percent. These are regulated alternatives to payday loans.
Another option is to explore other types of credit, such as credit cards or lines of credit, but these can also come with high interest rates if you have bad credit. You might also consider borrowing from friends or family, or negotiating a payment plan with a creditor.
It's also important to distinguish personal loans from payday loans. Payday loans are typically due on your next payday, often within two to four weeks, and they charge fees rather than interest, which can translate to an equivalent APR of 300% or more, according to Bankrate. These are generally considered predatory and should be avoided if possible.
- Credit union personal loans: up to 18% APR for traditional loans, and PALs up to 28%.
- Payday alternative loans (PALs) from federal credit unions are designed to be safer than payday loans.
- Avoid payday loans with APRs often exceeding 300%.
- Other alternatives: credit cards, borrowing from family, or negotiating payment plans.
Sources: Federal Reserve Board, Bankrate
How to Compare and Choose a Lender
Choosing the right lender for a bad credit personal loan involves comparing multiple factors: interest rate (APR), fees, loan amount, repayment term, and eligibility requirements. Because bad credit loans often have higher APRs, even a small difference in the interest rate can significantly affect your total cost.
Research from CNBC and Bankrate highlights several lenders that serve borrowers with bad credit. For example, Upstart offers loans from $1,000 to $50,000 with APRs ranging from 6.20% to 35.99%, and accepts credit scores as low as 300. OneMain Financial has no minimum credit score and offers loans from $1,500 to $30,000 with APRs from 11.99% to 35.99%. Avant requires a minimum score of 580 and offers loans from $2,000 to $35,000 with APRs from 9.95% to 35.99%.
When comparing lenders, look at the total cost of the loan, not just the monthly payment. Calculate the APR, which includes interest and fees, and compare it across offers. Also consider the loan term—longer terms may mean lower monthly payments but more interest paid over time. Use prequalification tools, which allow you to check your potential rates without affecting your credit score, to get a sense of what you might qualify for.
- Compare APRs, fees, loan amounts, terms, and eligibility.
- Prequalification tools can show estimated rates without a hard credit check.
- Check the lender's reputation and whether it reports payments to credit bureaus.
- Read the fine print for any prepayment penalties or other fees.
Sources: CNBC Select, Bankrate, Experian
Risks and Predatory Lending Warning Signs
While personal loans can be a helpful financial tool, there are risks, especially for borrowers with bad credit. High interest rates and fees can make loans expensive, and if you fall behind, you could face late fees, collection calls, and damage to your credit score. Worse, some lenders engage in predatory practices that trap borrowers in a cycle of debt.
Payday loans are a classic example of predatory lending: they are designed to be repaid within two to four weeks, often charge fees rather than interest, and can have an equivalent APR of 300% or more. This makes them very difficult to repay on time, leading many borrowers to roll over the loan and incur additional fees.
Other warning signs of predatory lending include extremely high APRs (well above 36%), origination fees that exceed 12% of the loan amount, pressure to borrow more than you need, and lenders who do not check your ability to repay. Always ensure the lender is licensed in your state and provides clear, transparent terms in writing. If an offer seems too good to be true, it likely is.
- Avoid loans with APRs above 36% unless they are from a regulated source like credit unions.
- Be wary of lenders that do not consider your income or ability to repay.
- Never agree to terms you do not fully understand.
- Check for licensing and read consumer reviews.
- Remember that a loan is a financial obligation—borrow only what you can afford to repay.
Sources: Bankrate, Federal Reserve Board
Frequently asked questions
Can I get a personal loan with a credit score below 500?
Yes, some lenders specialize in bad credit and accept scores as low as 300. Upstart, for example, has a minimum credit score of 300, and OneMain Financial has no minimum credit score requirement. However, loans for very low credit scores often come with higher APRs and may require collateral or a co-signer.
Sources: CNBC SelectWhat is the minimum credit score for a bad credit personal loan?
The minimum credit score varies by lender. Traditional lenders typically consider a score below 600 as bad credit, while a FICO Score below 580 is often categorized as bad credit by credit bureaus. Some lenders accept scores as low as 300, while others, like Avant, require a minimum of 580.
Sources: Upstart, Experian, CNBC SelectHow much can I borrow with bad credit?
Loan amounts for bad credit personal loans can range from a few hundred dollars to up to $50,000, depending on the lender and your income and other factors. For example, Upstart offers loans from $1,000 to $50,000, OneMain Financial from $1,500 to $30,000, and Avant from $2,000 to $35,000.
Sources: CNBC Select, ExperianWhat interest rate can I expect with bad credit?
Interest rates for bad credit personal loans are typically higher than for borrowers with good credit. According to Bankrate, rates can range up to 35.99% APR, though some lenders may offer lower rates. Credit unions offer lower caps: 18% for traditional personal loans and 28% for payday alternative loans.
Sources: Bankrate, Federal Reserve BoardAre there personal loans that don't require a credit check?
Most reputable lenders do a credit check, but there are options like payday loans that typically do not check credit. However, payday loans are extremely expensive, with equivalent APRs often over 300%, and are considered predatory. Credit unions offer payday alternative loans that may have more lenient credit requirements but still typically review your credit.
Sources: Federal Reserve Board, BankrateWhat is the difference between a personal loan and a payday loan?
A personal loan is an installment loan repaid over months or years, with interest rates typically below 36% for bad credit loans. A payday loan is a short-term, high-cost loan due on your next payday, usually within two to four weeks, and often charges a flat fee rather than interest. The equivalent APR on payday loans can exceed 300%, making them much more expensive.
Sources: BankrateSources
- [PDF] An Overview of Personal Loans in the U.S. - Federal Reserve — Federal Reserve Board
- Personal Loans for Bad Credit - Upstart — Upstart
- Personal Loans for Bad Credit - Experian — Experian
- The Best Personal Loans for a Credit Score of 580 or Lower — CNBC Select
- Best Bad Credit Loans in August 2026 — Bankrate