Best personal loans for bad credit in June 2024

What are bad credit loans and how do they work? 

A bad credit loan is typically designed for borrowers whose credit scores fall between 300 and 579. Lenders consider it riskier to lend to borrowers with bad credit because there may be a higher chance they won’t be able to repay the loan. 

Like traditional personal loans, bad credit loan funds can be used for a variety of different needs. Consumers often choose a bad credit debt consolidation loan to pay off a pile of high-interest-rate credit cards. Or you may need a bad credit emergency loan to fund something urgent like a car repair or medical expense. 

When you apply for a bad credit loan, the process is much the same as that of any other personal loan. The only difference is you're likely you’ll pay a higher APR, and may be offered a smaller loan or shorter term than a good or excellent credit borrower.

Compare rates by prequalifying with at least three lenders. Review their upfront and any ongoing fees. Origination fees are usually deducted from your funds when the loan is completed. Once you find a lender that fits your needs, submit an application. Decisions are typically made within a matter of minutes, and funds may be available within one business day, depending on the lender.

Average personal loan rates by credit score

As of June 20, the average personal loan interest rate is 12.35 percent, according to a Bankrate study. Your rate may vary depending on your credit score and financial situation. As a bad-credit borrower, your rates are likely to be above the national average. 

Types of bad credit loans

Pros and cons of bad credit personal loans 

A bad credit personal loan can give you access to quick cash in an emergency, give you relief from high-interest rate credit cards or help you pay for a large car or home repair. But there are disadvantages that also must be considered before making a decision. Fully weigh the pros and cons of a bad credit personal loan before taking one out.

Where to get a personal loan with low credit

Bad credit loans are offered by credit unions, community banks and online lenders. Always compare at least three different offers to make sure you’re getting the best loan terms for your situation.

In general, online lenders offer the most competitive terms for low or bad credit. They may work with investors willing to take bigger risks on low credit score borrowers than banks and credit unions. 

As a general rule of thumb, banks and credit unions don’t cater as much to bad credit borrowers. However, some banks may participate in no-credit-check small loan programs. The guidelines and requirements vary depending on where you live. Credit unions may also offer payday alternative loans.

Expert advice for low credit loans

Know how to spot a scam before you start sending out applications. A bad credit scam could cost you hundreds or even thousands of dollars, so it's worth the time to research each lender thoroughly.

Tips on how to qualify for a loan with a low credit score

If you've looked at different lenders and don't meet most of the minimum eligibility requirements, you can take a few steps you can take to help increase your approval odds.

• Look into secured options: Some bad credit lenders offer secured personal loan options. Most of the balances are backed by a deposit or your vehicle. The eligibility requirements are often less stringent than unsecured loans since you’re putting up an asset as collateral..  
• Add a co-applicant: Not all lenders allow for co-applicants, but if you're having a hard time getting approved, look for ones that do. Adding a creditworthy co-applicant can help you get approved, even if you don't meet the financial criteria originally. 
• Include all streams of income: Report all your income streams, including side gigs or passion projects that earn revenue. The larger your income, the larger your approval odds could be. 
• Only ask for what you need or lower your requested loan amount: Borrowing only what you need is a good general practice to avoid paying interest on money you don't need. Lower your minimum loan amount if you can. A lender may be more willing to approve you for a smaller amount, especially if you have low credit. 

How to spot bad credit loan scams

Avoid potential scams while shopping for a personal loan by being aware of these eight red flags.

1. The lender guarantees approval: If you come across a lender that isn’t interested in your payment history before assuring you that you'll be approved, you might be lured into a predatory lending product.
2. The lender charges upfront fees: Most lenders don't bury hidden fees within the terms and agreements or charge immediate fees. Reputable lenders will include the fees within your monthly payments — or in some cases, deduct them from the amount funded — and will clearly lay out all of the expenses you're responsible for. 
3. The lender pressures you to act immediately: If a lender claims it can press charges if you don't accept, or claims that the offer expires within the same day, it’s a scam.
4. The lender gives you unsolicited offers: Unsolicited loan offers, typically over email, phone calls and door-to-door solicitation, are not legitimate advertising practices for trustworthy lenders.
5. The lender doesn't have clear contact information: If it's difficult to find the contact information or if you can't easily get in contact with the customer service department, that could be a red flag. 
6. The lender has no physical address: Although online lenders exist, all reputable institutions should have a physical address listed as its headquarters on the website. 
7. The lender isn't registered in your state: The Federal Trade Commission (FTC) requires that lenders be registered in the state where they do business. Research whether the business is licensed in your state.
8. The website is not secure:  A lender's site should be secure, meaning the website address should begin with "https" and feature a padlock symbol on any page where you're asked for personal information.

Is fast funding safe?

Many online lenders offer fast funding timelines — some offer same-day funding and others offer financing as soon as one business day after approval. At times this can sound too good to be true, but for legitimate lenders and financial institutions, it's a common offering that many borrowers take advantage of. 

Fast funding is only unreliable when the loan or lender itself is unreliable. If the lender matches any of the potential red flags listed above along with same-day funding, you may be involved in a scam and should direct your attention elsewhere.

Our experts weigh in on how you can replace your bad credit loan down the road to get a balance with more favorable terms.

Bad credit loans can be risky if they aren’t part of a financial plan to improve your future credit. Our experts weigh in on ways you can replace a bad credit loan with one at more favorable terms down the road. 

Frequently asked questions