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Applicants with poor credit have limited financial options beyond payday loans or pawn shop lenders. But, they can find personal loans with a fixed rate if they follow protocol to prequalify for multiple lenders and compare terms without impacting their credit score.
Look for a lender with clear loan information on its website and a low number of complaints with regulators like the Consumer Financial Protection Bureau. Also, avoid lenders who market guaranteed approvals or charge upfront fees.
Personal Loans
Personal loans are another type of financing that can be a good option for bad credit. They are usually unsecured, meaning you don’t have to put up any collateral to secure the loan. Personal loan lenders often offer competitive rates and terms for people with bad credit. However, it’s important to find a lender that is trustworthy and will not take advantage of borrowers with bad credit.
One of the best places to find a personal loan for bad credit is with a local credit union. These are non-profit, member-owned financial institutions that typically have membership requirements based on your location or employer. Some of these lenders offer personal loans for people with bad credit, although their approval criteria may be more strict than traditional lenders.
There are also online personal loan providers that offer loans for bad credit. These lenders use a combination of factors to determine eligibility, including credit score, income and debt-to-income ratio. These lenders may use a soft credit inquiry to pre-qualify applicants, which can help them understand their options without impacting their credit.
Some lenders also allow a cosigner to be added to a personal loan for bad credit. This can help improve the borrower’s chances of getting approved and can lower their interest rate. If you decide to go this route, be sure to work with a trusted friend or family member who will be able to make the payments if necessary.
Payday Loans
Payday loans are typically short-term financial products that offer fast cash to consumers on tight budgets. Also known as payday advances, they LoansPalace require that borrowers write a post-dated check to repay the loan within two to four weeks. If a borrower does not have sufficient income to cover the repayment amount by the due date, they can roll over or refinance the loan, which leads to more fees and a cycle of debt.
Payroll loans are considered predatory by many consumer advocates because of their high interest rates and fees, which can push borrowers into debt over time. According to a staff report published by the Federal Reserve Bank of New York, the majority of payday lenders’ products have triple-digit APRs, well above rates caps in some states and recommended by consumer advocates.
Personal loans for bad credit are often used to help borrowers manage expenses and repair credit. Unlike traditional personal loans, bad credit personal loans often carry lower rates and require less strict qualifying criteria. To qualify, lenders look at your credit score, debt-to-income ratio, and whether you have a co-applicant or collateral.
Some lenders specialize in personal loans for bad credit, such as Upgrade, which offers a range of loan amounts and repayment terms to suit most needs. While its minimum credit score requirement is higher than most of the lenders in our review, it offers competitive rates and repayment terms for borrowers with poor or fair credit.
Credit Cards
Local credit unions may be willing to loan money to borrowers with bad credit scores. These lenders often take into account a borrower’s overall financial picture, including income, and may not be as strict about credit scoring. Borrowers with bad credit can also consider applying for personal loans with a lender that specializes in lending to those with poor credit. These lenders typically have lower minimum credit score requirements and can offer larger loans up to $50,000.
Auto Loans
Auto loans can be an option for people with bad credit, though it’s usually more challenging to get approved. You’ll want to take steps to improve your credit before applying, consider adding a cosigner or finding lenders that specialize in bad credit car financing. Having a budget and researching add-ons like service contracts, credit insurance or extended warranties can also help you qualify for the loan that makes the most financial sense.
When comparing offers, it’s important to understand that loan terms, interest rates and fees are different from lender to lender. Generally, longer loan terms and lower credit scores lead to higher interest rates. You can also use online tools, like loan calculators, to compare loan programs side-by-side.
You can find car loan options at banks, credit unions and some direct lenders (such as iLending, which has physical locations). Many of these lenders offer preapproved auto loans for buyers who have a qualifying income and credit score. This can speed up the car-buying process and allow you to shop like a cash buyer once you’re approved.
Other alternatives include personal loans, which are unsecured and don’t require a vehicle as collateral; however, the CFPB warns that these may have a more expensive APR than an auto loan. Finally, it’s always a good idea to apply to several lenders. Some lenders may offer more flexible credit requirements or even offer loan forgiveness for military members.