Roughly 1 in 5 Americans has a credit score below 600, according to data from the credit bureau Experian.
If you’re one of them, you might be wondering, “How can I borrow money with bad credit?” After all, having bad credit doesn’t stop you from needing a loan if your income and savings fall short.
The good news is you can qualify for reasonable personal loan rates with bad credit. Here are three effective strategies for finding the best personal loans rates despite your not-so-stellar credit.
1. Learn how to spot predatory lenders
Payday loan and auto title loan companies target people with bad credit with their easy short-term loans. They market them as bad-credit loans with guaranteed approval, and you typically can get the cash within minutes and go on your way.
But their APRs are astronomical, and you usually have less than a month to repay the debt.
As a result, payday and auto title loans can throw you into a vicious cycle of debt that can be difficult to escape, especially if you’re living paycheck to paycheck.
To avoid such predatory loans, here are some signs to watch out for.
If a lender is willing to lend to anyone regardless of their credit situation, it’s taking on a big risk.
To compensate, the lender often will charge exorbitant interest rates and fees, regardless of whether you’d qualify for better terms.
Most reputable lenders take at least a day to disburse loan funds to you. If a lender promises that you can walk out of the branch with cash in hand, you could pay dearly for the convenience.
In other words, if it sounds too good to be true, it probably is.
Ultra-short repayment periods
Most legitimate lenders give you at least 12 months to repay your personal loan. Predatory lenders, on the other hand, tend to define repayment terms in days and weeks.
And if you can’t manage to pay off the loan in time, you might have to take out another loan, throwing you into a vicious cycle of debt.
2. Look at alternative lenders for great personal loan rates
Even if you know how to spot predatory loans, it can be hard to find personal loans with decent interest rates.
Knowing where to go right away can save you time and money. Here are a few options to consider.
Your local credit union
Not all credit unions offer personal loans to people with bad credit. But the personal loan rates of those that do are relatively affordable.
That’s because the National Credit Union Administration caps interest rates for most loans at 18 percent. The credit union can, however, tack fees onto the loan that could raise the APR. But if it’s a short-term payday alternative loan, the maximum APR you can expect is 28.00%.
Traditional banks don’t offer many options for people with bad credit. But some online lenders offer reasonable personal loan rates. Here are a few options as of January 2018:
|Lender||Interest Rates||Minimum Credit Score|
|OneMain Financial||17.59% to 35.99%||None|
|Avant||9.95% to 35.99%||580|
|LendingClub||5.99% to 35.89% APR||600|
Be sure to shop around so you know you’re choosing from the best personal loan rates.
And read bad-credit loans reviews for these lenders to make sure other customers have had good experiences. It could be worth paying slightly higher personal loan rates to avoid a terrible experience.
Consider the monthly payments attached to any bad-credit loan offers to make sure they fit into your budget too. During the process of comparing personal loan companies, calculate how much you’d owe each month to determine if you can manage it.
3. Ask someone to cosign the loan
If your credit is bad enough, you might not qualify for a personal loan on your own.
But if a family member or trusted friend is willing to apply for the loan with you as a cosigner, it could improve your chances of getting approved — and with better personal loan rates.
It’s important, however, to understand what this means for your cosigner. For starters, they would be equally responsible for making payments on the loan. So, if you default, the lender could go after them.
Also, the loan will show up on your cosigner’s credit report, which could affect their credit for better or worse.
As a result, asking someone to cosign a loan is asking them to trust you implicitly. If you breach that trust by defaulting or falling behind on payments, it could destroy your relationship.
So, make sure you both know what you’re getting yourselves into.
Build your credit for better personal loan rates in the future
The best way to qualify for great personal loan rates is to establish an excellent credit history. This can take time. But fortunately, your personal loan can help you do it.
Your payment history is the most important factor in your credit score, so making on-time payments each month can make a big difference over time. Avoid missing payments by setting up automatic payments from your bank account.
As you tackle the negative items on your report, you’ll see your score improve over time, making it easier to qualify for inexpensive personal loan rates in the future.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000|
|6.26% – 14.87%1||$5,000 - $100,000|
|6.99% – 35.97%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|4.99% – 29.99%3||$10,000 - $35,000|
|5.99% – 18.99%4||$5,000 - $50,000|
|15.49% – 34.49%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|