Can You Get a Personal Loan With Bad Credit?

Bad credit makes it difficult, but not impossible, to get a personal loan. Personal loans are different than mortgage and car loans, which are issued for specific purposes, because you can spend a personal loan on anything you wish. For example, you might need to pay medical expenses or consolidate credit card debt.

Before you head to the bank to apply for your loan, check your credit score to get an idea of how lenders will view your application. The score will be a number between 300 and 850, with a higher number being better.

What Is a Bad Credit Personal Loan?

There’s no specific definition of what constitutes a bad credit score, but a score of 660 or below can be considered subprime, according to Experian, a major credit bureau. Experian lists a score of 570 or below as a “very poor” credit score. A bad credit personal loan is one granted to a borrower despite the borrower’s low score.

Borrowers with low credit scores are risky for lenders, especially on unsecured bad-credit loans, because the bank has no collateral to recover if you fail to meet your loan repayment obligations. Collateral is personal property that secures the loan, meaning the lender can seize the property if you don’t pay back the money, as with an auto loan or mortgage loan.

See: 6 Best Bad Credit Car Loans

Effects of a Bad Credit Score

Though you can still get credit with a bad credit rating, your terms might not be as friendly. For example, the annual percentage rate on your loan could be much higher, costing you more in interest. At Lanco Federal Credit Union, personal loan interest rates start at 8.99% APR if your credit score is over 750, but the rate climbs to 17.99 percent if your score is under 620. In addition to charging you a higher interest, the lender might ask you to pay a fee or deposit, said Experian.

Finding the Best Personal Loan for Bad Credit

Although your goal always should be to keep building credit, learning how to find the best personal loans for bad credit can help you borrow the money you need while you work on improving your credit score. Here are three things you should do to obtain a bad-credit loan:

1. Start With Your Own Bank

When looking for a personal loan, start with a financial institution where you have a checking or savings account. A bank that has an existing relationship with you might be more willing to loan you money.

2. Consider a Cosigner

A cosigner is someone who applies for the loan with you and agrees to be jointly responsible for repaying the loan. Having a cosigner can be helpful because it gives the lender someone else to recover from if you default on the loan. Although credit unions typically base the interest rate on the primary applicant’s credit history, other financial institutions might consider your cosigner’s credit history and reward you with a lower rate.

3. Offer Collateral

Consider using a secured loan if you can’t get an unsecured personal loan. Perhaps you could use your car title — if you own the car free and clear — as collateral to help a lender feel more comfortable lending to you. A secured loan might also get you more money and a lower interest rate.

Related: Best Types of Loans for People With Bad Credit