Borrowing money when you have bad credit can be a stressful experience. For starters, your chances of getting denied are high. And if you do get approved, many bad-credit loans come with high interest rates.
Neither risk is entirely avoidable. But if you know where to look, you can find loans for people with bad credit that aren’t predatory. With these loans, you can improve your chances of getting approved and maybe even score a reasonable interest rate. Here’s how to find them.
Loans for people with bad credit: Here are your options
Depending on the type of loan you’re looking for, different options are available. Find out which option works for you for the following loan types.
If you’re in school, your best bet is to apply for federal student loans. The Department of Education doesn’t run a credit check when you apply, so you’ll qualify for the low interest rates the government offers.
If you don’t qualify for federal student loans or you’ve maxed out your federal loan options, your next option is private student loans.
Private student lenders do have credit score requirements, however. So, you’ll need to find a co-signer who has good or excellent credit to help you get approved.
Getting a conventional mortgage loan can be hard if your credit isn’t great. Although the minimum credit score in most cases is 620, lenders aren’t required to approve your application if your score makes the cut.
To help provide mortgage loans for people with bad credit, three government agencies offer programs to insure mortgage loans. This insurance limits the risk for lenders, which can result in looser credit requirements.
Keep in mind, however, that each agency might have eligibility requirements and extra closing costs.
Here’s a breakdown:
|Government Agency||Minimum Credit Score||Extra Closing Costs||Basic Eligibility Requirements|
|Veterans Affairs (VA)||None||Funding fee of 1.25 percent to 3.3 percent of the loan amount||You must be one of the following: an active-duty service member, a veteran, an eligible spouse of a veteran, or a U.S. citizen who served in the armed forces of a government allied with the U.S. during World War II.|
|Federal Housing Administration (FHA)||500||Upfront Mortgage Insurance Premium (UFMIP) of 1.75 percent of the base loan amount||You must put down 10 percent to get approved with a credit score of 500 to 579 or 3.5 percent to get approved with a credit score of 580 or higher.|
|U.S. Department of Agriculture (USDA)||580||None||There are different requirements depending on which program you choose. See the USDA website for more details.|
For some agencies, more requirements apply. For example, the VA has some requirements regarding how long you’ve been in service. There are also some exceptions if you’ve suffered a service-connected disability. See the VA eligibility page for more information.
Keep in mind that mortgage lenders are interested in other aspects of your financial situation as well. For example, they want to know you have a stable job. They also want to make sure your debt load won’t be too heavy if you add a mortgage.
In fact, mortgage lenders typically use two ratios to make sure your debt isn’t too much of a burden:
- Front-end ratio: Your total monthly housing costs shouldn’t exceed 28 percent of your gross monthly income.
- Back-end ratio: Your total monthly debt payments, including the proposed mortgage, shouldn’t exceed 36 percent of your gross monthly income.
Auto loans are typically secured, meaning the vehicle is used as collateral in case you default, so you usually can get one with bad credit.
Some auto lenders specialize in auto loans for people with bad credit. Here are a few examples:
Additionally, well-known lenders such as Capital One and U.S. Bank allow you to get preapproved for a loan with a soft credit check, which can give you an idea of whether you’d get approved without officially applying.
To improve your chances of getting approved with a low interest rate, considering getting a co-signer with a good credit history.
If you want an unsecured personal loan, here are a few options to consider:
|Lender||Minimum Credit Score||Interest Rates (as of November 2017)|
|OneMain Financial||None||Not listed|
|Avant||580||9.95% - 35.99%|
|Lending Club||600||5.99% - 35.89%|
Note that both Avant and Lending Club allow you to pre-qualify for a loan before you officially apply. This process allows you to see what kinds of terms you’d qualify for with a soft credit check, which won’t hurt your credit score. Then, you can apply to get the final offer.
If you’re having a hard time getting approved for an unsecured personal loan, some lenders offer bad-credit loans that are secured with collateral such as a car title, certificate of deposit (CD), or savings account.
Here are the top options for secured personal loans:
|Lender||Minimum Credit Score||Interest Rates (as of November 2017)|
|Finova Financial||No credit check||30.00% APR maximum|
|OneMain Financial||None||Not listed|
|Wells Fargo||None||Find your rate|
Getting a co-signer with a solid credit history can significantly improve your chances of getting approved with a lower interest rate.
But these loans are often predatory in nature, charging sky-high interest rates and requiring that you repay them within weeks.
If you’re a member of a credit union, you might be able to get a payday alternative loan. These bad-credit loans don’t charge more than 28.00% APR. You typically need to be a member of the credit union for at least one month before applying, though, so it’s not a good option if you don’t meet that eligibility requirement.
Also, not all credit unions offer payday alternative loans, so call first.
If you don’t necessarily need the money but want to work on improving your credit, a credit-builder loan can help you.
Self Lender is a popular company that offers credit-builder loans. Here’s how it works:
- The lender sets aside the loan amount in a CD account instead of giving it to you. That account serves as collateral for the loan.
- You make payments on the loan for 12 months with a 10.57% APR while the loan earns a lower rate of interest in the CD account.
- When you finish paying off the loan, you receive the balance of the CD, including the interest it earned during the term of the loan.
Self Lender doesn’t do a hard credit pull and doesn’t have any minimum credit score or history requirements.
If you want a great rewards credit card with a big sign-up bonus, you might be setting yourself up for disappointment. These credit cards typically are targeted to people with good or excellent credit.
That doesn’t mean you’re completely out of luck, but it does mean you might have to put some money down as a deposit on a secured credit card.
The Discover it Secured credit card is the best option for people with bad credit. Here are its main features:
- There’s no annual fee.
- Your deposit can be as low as $200. Your credit limit will be equal to your deposit.
- You’ll earn 2 percent cash back at restaurants and gas stations up to $1,000 spent between the two each quarter. Plus, you’ll get 1 percent cash back on everything else.
- Starting eight months after you open the account, Discover will review your account each month to determine if it can convert your card to an unsecured card.
- You’ll have free access to your FICO credit score so you can track your improvements.
The card charges a 23.99% APR, but you can avoid it by paying off your balance in full each month. You’ll also build credit while you make payments, meaning you can realistically improve your credit score without paying a dime in interest.
How to improve your credit to get past bad-credit loans
If you need to borrow money now, some bad-credit loans can get you the cash you need without costing you an arm and a leg. But there are steps you can take to improve your credit and qualify for better loans in the future.
Check your credit reports
You can access your credit report from each of the three national credit bureaus — Experian, Equifax, and TransUnion — once a year at AnnualCreditReport.com.
As you review your credit reports, you’ll get an idea of what’s causing your low credit score so you can address the issues.
For example, if you notice an error or fraudulent account, you can contact the listed lender and credit bureau to dispute the item. If you have late payments on a loan, you can pay it up and continue making payments on time.
Know what goes into your credit score
Although there’s no way to know exactly how your credit score is calculated, some general factors go into your score. Each one is weighted differently, and this chart for the FICO credit score shows how important each one is:
As you can see, your payment history and how much you owe are vastly more important than the other factors, so focus on those as you’re working to build your credit.
Avoid borrowing unless it’s necessary
As long as your credit is less than stellar, you’ll continue to pay relatively high interest rates on bad-credit loans. So, until your credit has improved and you qualify for better rates, avoid taking out loans or carrying a credit card balance.
As you establish a better credit history and borrowing becomes less expensive, borrowing won’t hurt you as much as it once did.
There’s hope for people with bad credit
Although having bad credit can make it harder to obtain a loan, it’s not impossible.
As you research options and compare offers, you’ll find loans for people with bad credit do exist. You just have to make sure you’re getting the best deal for your situation.
Then, you can begin the long but rewarding journey of building your credit and improving your financial situation for the future.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|7.39% - 29.99%||$1,000 - $50,000|
|4.98% - 14.24%1||$5,000 - $100,000|
|8.00% - 25.00%||$5,000 - $35,000|
|5.99% - 16.24%2||$5,000 - $50,000||Visit Citizens|
|5.99% - 35.89%||$1,000 - $40,000||Visit LendingClub|
|5.25% - 14.24%||$2,000 - $50,000||Visit Earnest|
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