Key learning points
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Bad credit loans often come with high interest rates and may require collateral or a cosigner.
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Payday loans are high-interest loans that are often marketed as bad credit loans, and should only be used as a last resort.
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Some lenders may offer short-term loans for small amounts to account holders with low credit levels and a positive banking history.
If you’ve been turned down for a loan due to bad credit, you’re not completely out of luck. Traditional personal loan lenders may have said no, but bad credit loans exist for borrowers with low credit scores who can’t get approved for financing elsewhere.
Most are convenient because they have quick financing terms and may not require a credit check. Still, bad credit loans come with their fair share of drawbacks, including potentially higher costs to borrow or the need to use your assets as collateral.
Cash advances
A cash advance allows you to withdraw money from your credit card’s available balance, up to the preset limit set by your credit card company. The amount you borrow will be added to the outstanding balance on your credit card. You’ll likely pay a higher interest rate than on regular credit card purchases, but there are ways to limit the overall cost.
If possible, use cash advances only for emergencies. While they offer a quick solution if you’re in financial trouble, they can be costly and leave you with credit card debt for an extended period of time.
Plus points
- Money immediately available.
- Less predatory than payday or no credit check lending.
Cons
- High interest rates, although lower than other bad credit options.
- Must have a credit card with an available balance.
Best for
Private individuals who need cash immediately and can repay the balance immediately.
Payday loans
Payday loans are an expensive short-term solution for borrowers who don’t qualify for other forms of financing. These loans should only be used when all other options have been exhausted and only for critical needs such as food or shelter, as they are often predatory and can leave you stuck in a cycle of debt if you cannot repay the balance in full, plus fees. when it’s time.
Many borrowers choose these loans because lenders do not perform a credit check and most offer loans of up to €500. They also have fast financing turnaround times – usually same or next day.
The costs of these loans are high, with most payday loans having an annual percentage rate (APR) well above 300 percent. In addition, the repayment period is often much shorter than with other forms of financing. Often you will have to pay back the entire balance on your next payday, otherwise you will have to pay high fees and may have to put the amount owed into another payday loan.
Plus points
- Same or next day delivery.
- No credit check required.
Cons
- Extremely short repayment period.
- High APRs – often 300 percent or more.
Best for
Individuals who have exhausted all other options and can afford to repay the entire balance on the next payday.
Bank agreements
Some banks offer short-term loans for smaller amounts to account holders with a positive banking history. The qualification criteria vary per bank. So check with your bank to determine if this is a viable option.
Credit unions also offer short-term loans with interest rates of up to 18 percent. You must be a member of the credit union to qualify, but they often have less strict criteria than banks and other lenders.
Plus points
- Lower interest rates than other bad credit options.
- Money available quickly.
Cons
- Much harder to qualify for.
- Must have an open checking account.
Best for
Individuals with poor credit scores who are members of a bank or credit union that offers agreements.
Car title loans
With car title loans, you can borrow between 25 and 50 percent of your vehicle’s value. But there’s a catch: You must own your car outright and transfer the title until the loan is paid in full. Most car loans have short repayment terms between 15 and 30 days, and loan amounts generally start at $100.
They are fast, but the ease of access comes at a price. The interest rate is very high and if you cannot repay your loan within the short repayment period, your car may be seized.
Plus points
- No credit check may be required.
- Fast approvals and financing timelines.
Cons
- Exorbitant interest rates.
- Risk of repossession if you cannot pay off the loan.
Best for
Individuals who have a loan-free vehicle that they can use as collateral and are confident in their ability to make their payments.
HELOCs or home equity loans
Home equity lines of credit (HELOCs) and home equity loans are another popular secured lending option for borrowers with less than perfect credit. These loans are second mortgages and offer you the opportunity to convert a percentage of the equity you have built up in your home into cash. In fact, there are very few restrictions on how you can use your money.
The downside is that they are secured by your home. You risk foreclosure if you cannot pay off the loan. Still, they can work if you haven’t found better options elsewhere and don’t expect any problems with paying on time.
Before applying, research potential lenders to determine if you meet the minimum eligibility criteria. It can be challenging to find a suitable lender if your credit score isn’t at least in the mid-600s. However, some lenders may be willing to do business with you if you have an acceptable debt-to-income ratio (DTI) and meet other guidelines.
Plus points
- Possibility to qualify for a higher loan amount.
- More competitive terms than personal loans with bad credit.
Cons
- Risk of exclusion.
- Financing may take longer, usually 30 to 45 days.
Best for
People who need to borrow a significant amount of cash.
Alternatives to Bad Credit Loans
Although bad credit loans are intended to help consumers who have difficulty obtaining financing, they can be expensive and predatory. If you’re facing financial problems or unexpected expenses, there may be some viable alternatives outside of bad credit or emergency loans.
- Think about a good cause. Local charities, churches, and nonprofits often provide assistance to members of their communities. You can join forums like Reddit and search local Facebook groups to see what options are available to you.
- Ask a family member or friend for money. Make sure you set up a repayment plan that works for both parties to avoid problems later.
- Use a credit card. If you have credit available on a credit card, the cost of underwriting it is likely much less than you’ll pay if you take out a bad credit loan.
- Take out a 401(k) loan. It provides easy access to funds without a credit check (if available), but should only be used as a last resort.
- Inquire about an emergency loan. Some employers offer hardship loans to provide financial assistance to employees facing unexpected expenses or other financial challenges.
Most importantly, work on building your emergency fund and improving your credit. In the future, you may be eligible for loan options with better conditions, higher amounts and more competitive interest rates.
Frequently Asked Questions
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Improving your score doesn’t happen overnight, but there are some ways you can grow your credit faster. For example, practicing responsible credit use and debt repayment is a sure way to see your score rise. You can also review your credit report for free to see if there are any discrepancies you need to correct that are lowering your score.
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Bad credit personal loans are among the easiest loans you can get with bad credit because the lenders lend across the credit spectrum. However, they often have much higher interest rates and less favorable terms than loans for good borrowers.
Depending on the lender, borrowers with less than ideal credit may be able to use a cosigner or co-applicant to secure a loan and get a better rate. -
Online lenders and some community banks and credit unions can make loans to borrowers with low credit levels. Make sure you do your research before applying. There are predatory lenders who may try to take advantage of your situation.
