Best Bad Credit Loans of December 2023

The Bottom Line

When researching the best loans for bad credit, we found Upgrade’s personal loans to be the best overall thanks to their accessibility, manageable interest rates, and opportunities for rate discounts. Other standouts on the list are Achieve if you’re looking to consolidate debt by paying creditors directly, or Upstart if your credit has hit rock bottom. If you want to avoid an origination fee, then consider joining First Tech Federal Credit Union or Patelco Credit Union to apply for one of their loans.

What Are Loans for Bad Credit?

Bad credit loans are loans for individuals with low credit scores, usually 579 or less. Although there are many types, the most common are unsecured personal loans. There’s no collateral, you’ll have a fixed interest rate and fixed monthly payments, and, like other loans, these will show up on your credit reports and affect your credit score.

Unsecured personal loans for bad credit are just like any other unsecured personal loan, and they can be an invaluable lifeline when facing unexpected expenses. However, they typically come with more fees and higher APRs than traditional loans extended to people with better credit.

What Makes Up a Bad Credit Score?

While there are a number of different credit-scoring models, one of the most commonly used being the FICO credit scoring system. Having "bad credit" typically means being in the "fair" or "poor" categories.

Your FICO score considers both positive and negative information listed in your credit report, which is grouped into the following five weighted categories:

Payment History (35%)

The Payment History category shows whether or not you've paid your past credit accounts on time. Payment History has more weight than any individual factor on your FICO score due to its importance to creditors, as this information allows lenders to better assess how much of a credit risk a prospective borrower represents.

Amounts Owed (30%)

As the name suggests, the Amounts Owed category shows how much debt you carry in total. Fortunately, having extant debt doesn't inherently indicate that you're a high-risk borrower to potential lenders. That said, if the information included in your Amounts Owed category shows that you're using a lot of your available credit, that could negatively impact your FICO score.

Length of Credit History (15%)

If you have a long credit history, that will always be good for your FICO score. According to myFICO, the Length of Credit History category considers the following pieces of information:

• How long your credit accounts have been established, including the age of your oldest account, the age of your newest account, and the average age of all your accounts
• How long specific credit accounts have been established
• How long it has been since you used certain accounts
  

Credit Mix (10%)

The Credit Mix category represents the different kinds of accounts that make up your credit report, such as credit cards, mortgages, student loans, etc. As such, having a healthy credit mix in conjunction with a good payment history shows how well you're able to handle several different loans and lines of credit.

New Credit (10%)

The New Credit category is perhaps the most straightforward. Having multiple new credit accounts noted on your credit report within a short time period represents a greater risk for lenders, especially if you also lack a lengthy credit history.

Do You Qualify for a Bad Credit Loan?

To qualify for a personal loan with bad credit, you’ll likely need to meet certain criteria. Some of the most important factors are:

• Your current credit history shows your problems are resolved: Lenders are more willing to overlook a bad credit score if your current credit history shows you’ve fixed the problems. This usually means that you don’t have any currently delinquent debt, any judgments are paid (e.g., tax liens), and bankruptcies are resolved. The goal is to ensure your old issues won’t prohibit you from repaying the new loan.
• You have enough income to comfortably repay the debt: Before you can get a new loan, most lenders will want to make sure you have enough income to repay it. They’ll determine this by looking at your debt-to-income ratio. It’s also a good idea to review your budget to see if you can comfortably make the monthly payment before you proceed.
• Loan funds will help improve your overall financial situation: The other thing that lenders consider is whether the loan may help improve your credit. For example, getting an affordable loan to consolidate existing debt into a single fixed-rate loan with a lower interest rate could improve your credit and help you pay off your balance faster. Plus, you’ll save money on interest charges.

Types of Bad Credit Loans

The most common types of bad credit loans aren't all that different from the loan options available for borrowers with good credit, which are listed below:

How to Choose the Best Loan for Bad Credit

How to Compare Loans for Bad Credit

When shopping for a personal loan for bad credit, these are the most important things to consider when comparing lenders:

• APR range: Loans come at a cost, which includes the interest rate and any fees, like origination fees. The yearly cost of a loan is reflected in its annual percentage rate (APR). This means it’s typically more important to evaluate the APR than the interest rate or origination fee when comparing personal loan lenders. A personal loan calculator can help you determine what you can and can't afford.
• Loan amounts: Make sure the lender you choose offers a loan amount that’s big or small enough for your needs. Some lenders only offer loans of $5,000 or more, which could be a problem if you only need $500. In contrast, if you have a lot of debt to consolidate, you may need a lender that offers bigger loans.
• Repayment term length: In addition to the APR, the next biggest factor affecting the size of your loan payment is the repayment term. You’ll have the lowest overall borrowing costs if you choose the shortest possible repayment term since you’ll pay less interest over the life of the loan. However, this results in a larger monthly payment. Be sure to select a lender offering a repayment term that works with your budget and needs.
• Ease of application: Many lenders have an online application process that takes mere minutes to complete and lets you know if you pre-qualify without hurting your credit.
• Funding speed: If you want to get your money fast, look for a lender with next-day funding (some even offer same-day funding). But take note that funding times aren’t guaranteed, and will depend in part on your own bank.
• Lender’s reputation: Make sure the lender you choose has a good reputation. Check consumer review sites for customer feedback, and look at government sources like the Consumer Financial Protection Bureau’s Consumer Complaint Database. Doing your due diligence will help you choose a reputable lender. 

Loan Cost the Most Important Factor for Most Borrowers

In Investopedia's 2023 Personal Loan Borrower Survey, we asked respondents to rank loan features on a scale from most important to least important. Almost half of borrowers (48%) ranked the cost of the loan as the most important factor. In a similar survey we conducted in 2022, 39% of borrowers also ranked loan cost as the most important factor.

How to Apply for a Bad Credit Loan

Applying for a personal loan with bad credit is similar to what’s required for any other type of loan, and it's a fairly simple process.

1. The first step is to review your credit score and credit reports to identify any mistakes or past debt that you can request corrections for.
2. Identify which lender you want to work with by comparing several bad credit loans. Most lenders will offer to perform a soft credit check, which doesn't affect your credit score, to see if you pre-qualify for a loan.
3. You'll need to fill out an application. You might be required to provide documentation like a driver's license or other government-issued ID, proof of address, or financial details, potentially including your income or monthly housing payment. You might also need to set up an online account, depending on which lender you choose. Consider adding a co-signer or joint applicant (if your lender allows you to do so) to improve your chances of qualifying and potentially secure a better interest rate.
4. After your application is approved, you'll receive the terms and conditions of the loan. Make sure you review those carefully so you know exactly what's required, including monthly payments, what the loan can and can't be used for, and your interest rate.
5. Once all of that is complete, accept the terms and receive your loan funding.
   

Alternatives to Bad Credit Loans

Some alternatives to personal loans for bad credit worth considering are:

• Payday Alternative Loans (PALs): You may be able to find a PAL from a credit union; PALs come in amounts of $200 to $1,000 and have a maximum APR of 28%.
• Secured loans: Secured loans require collateral, like a vehicle, deposit, or the equity in your home (in the case of a home equity line of credit (HELOC) or a home equity loan).
• Buy now, pay later: If you're making an eligible purchase, you may be able to use a buy now, pay later service to stretch out the payments over several months.
• Credit cards: Credit cards can help you pay for things over time, especially if you have a promotional 0% interest rate. Credit card cash advances are not recommended outside of emergencies because they tend to come with higher interest rates.
• Cash advance apps: Cash advance apps may be worth exploring, but carefully check the fees and be sure to have a firm repayment plan in place.
• Nonprofit aid: Look for local groups that offer aid to people who need to borrow money; there are also federal programs like Temporary Assistance for Needy Families.

Pros and Cons of Bad Credit Loans

Pros

• Easier to qualify for: The primary benefit of bad credit loans is that applicants with fair or poor credit have a better chance of being approved than they would with a regular personal loan. Bad credit lenders typically have less strict credit score requirements compared to many traditional lenders, though they may consider alternative factors to gauge a borrower's creditworthiness.
• Can help rebuild your credit score: Taking out a new loan, whether for bad credit or not, will require a credit check. This results in a hard inquiry being recorded on your credit report, which will temporarily decrease your credit score. However, acquiring a new loan can improve your credit mix (assuming you don't have several extant loans), and making on-time payments will establish a positive payment history, which are both things that can improve your credit score in the long run.
• Potentially a better option than other lending products: While bad credit loans have higher interest rates when compared to traditional loans, they aren't inherently the worst lending option in that regard. Bad credit loans may have lower interest rates than some credit cards, and they almost certainly will have better interest rate terms than a payday loan.

Cons

• High interest rates, fees, and penalties: To lenders, borrowers with fair or poor credit scores represent a not-insignificant credit risk. In order to compensate, bad credit lenders charge higher interest rates than you'll find on most traditional loans. Additionally, bad credit loans tend to come with a litany of fees as well as penalties that usually require a clear understanding of the loan terms to avoid, both of which can further increase the actual cost of the loan.
• Greater risk of predatory lending: Not all bad credit lenders are legitimate, and borrowers who are in desperate need of funding are particularly vulnerable to predatory lending practices. Levying excessive and hidden fees, charging a substantial balloon payment at the end of a loan's term, and steering borrowers toward more expensive loans are just a few forms of predatory lending that individuals with fair or poor credit need to watch out for.

How Bad Credit Personal Loan Fees Work

When it comes to bad credit personal loans, there are four main types of fees that prospective borrowers ought to be prepared for.

• Origination fee: An origination fee is one that's charged upfront by a lender as compensation for processing a personal loan application. Origination fees are typically levied as a percentage of the loan balance and can vary from 1% to 10%, depending on the lender. This fee is most often deducted from the loan amount before funds are disbursed.
• Application fee: Similar to origination fees, an application fee is charged upfront when a borrower applies for a new personal loan to cover processing and documenting costs, even if the application is ultimately denied, and is deducted from the loan balance. The amount of a loan application fee (and whether one is even levied at all) will vary by lender.
• Late payment fee: Perhaps unsurprisingly, lenders will impose a late payment fee when you fail to make an on-time loan payment. The exact amount will depend on the terms of the loan and whether the borrower has made a late payment before; $25–$50 or 3%–5% of the monthly payment amount are commonly cited estimates.
• Prepayment penalty: Unfortunately, depending on the terms of a borrower's loan, there's also a risk of being punished when paying down or paying off installment loans too quickly. Lenders may charge prepayment penalties to compensate for the loss of interest income they would've otherwise collected.

How to Spot Personal Loan Scams

There are a myriad of personal loan scams out there, and it can become even harder to spot them when looking at loan products for bad credit. Below are a list of questions a potential borrower should be asking themselves when considering this type of funding:

• Is a lender using vague advertising tactics? Are they promising guaranteed funding without approval?
• Is the lender registered in your state, and do they have a physical address?
• Is the lender's website unsecured?
• Is the lender is requiring the fees be paid upfront, typically requesting payment either via services like Venmo, Zelle, CashApp, or PayPal or in cryptocurrency?
• Is the lender listed on the Better Business Bureau, and if so, are other borrowers reporting being scammed?

If you suspect you've been the victim of a personal loan scam, contact your local police department and your state Attorney General immediately. Additionally, if the fake lender is located in another country, you should reach out to the Federal Trade Commission and the Federal Bureau of Investigation.

Learn More About Loans for Bad Credit

• What Is a Personal Loan?
• How Do Personal Loans Work?
• How to Get a Personal Loan
• How to Apply for a Personal Loan
• How to Use a Personal Loan
• Where to Get a Personal Loan
• Personal Loans vs. Credit Cards
• Alternatives to Personal Loans
• Personal Loan Calculator
• Best Personal Loans
• Best Personal Loans for Excellent Credit
• Best Personal Loans for Fair Credit
• Best Personal Loans With no Credit Check
• Best Fast Personal Loans
• Best Low Interest Personal Loans
• Best Personal Loans With a Co-Signer

Methodology

To evaluate and rank personal loan providers we collected hundreds of data points across 70 lenders, including traditional banks, credit unions, fintechs, and special interest finance companies. We researched and evaluated APRs, loan amounts and terms, fees, customer experience, and much more. To rank the lenders in our database and to generate star ratings, we weighted the data we collected, based in part on what consumers told us were the most important features of a personal loan and lender in a survey we conducted. We grouped those factors into four broad areas:

• Loan costs (advertised APR, fees, and six other factors): 29.25%
• Loan terms (loan amount, repayment term, and three other factors): 22.25%
• Borrowing requirements (credit score, membership requirement, and six other factors): 28.5%
• Additional features (online application, pre-qualification, and eight other factors): 20%

Investopedia launched in 1999 and has been helping readers find the best bad credit loan companies since 2019. Learn more about how we evaluated personal loans in our complete methodology.