Getting a personal loan with bad credit can be challenging, but it is not necessarily impossible. Lenders typically consider your credit history, income, existing debts, and other financial information when deciding whether to approve an application and what terms to offer.

The biggest challenge for borrowers with poor credit is often the cost of borrowing. A lender may approve a loan but offer a higher interest rate, smaller loan amount, or shorter repayment period than it might offer someone with stronger credit.

The good news is that you can take practical steps to improve your chances of finding a loan that fits your financial situation. Comparing lenders, checking your credit report, understanding the annual percentage rate (APR), and avoiding predatory offers are especially important.

What Is a Personal Loan?

A personal loan is money borrowed from a financial institution, bank, credit union, or online lender that is generally repaid through scheduled installments.

Personal loans can sometimes be used for purposes such as:

• Debt consolidation
• Emergency expenses
• Home repairs
• Medical bills
• Major purchases
• Moving expenses
• Unexpected household costs
• Other qualifying personal expenses

Many personal loans are unsecured, meaning they do not require an asset such as a vehicle or home as collateral. However, lenders may have different requirements and may offer both secured and unsecured borrowing options.

What Is Considered Bad Credit?

There is no single universal definition of "bad credit." Different lenders use different credit-scoring models and underwriting standards.

Credit scores are based on information in your credit reports and are used by lenders to help evaluate credit risk. Factors can include payment history, outstanding debt, credit utilization, length of credit history, new credit applications, and other information.

A lower credit score can make it more difficult to qualify for favorable loan terms.

However, your credit score is not the only factor lenders may consider. Income, debt obligations, employment or income stability, loan amount, and other information can also affect a lender's decision.

Can You Get a Personal Loan With Bad Credit?

Yes, some lenders offer personal loans to borrowers with less-than-perfect credit.

However, approval is not guaranteed.

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Depending on the lender and your overall financial profile, you may encounter:

• Higher APRs
• Lower borrowing limits
• Shorter repayment terms
• Additional fees
• Stricter income requirements
• Requirements for a co-signer or collateral

Instead of looking for a lender that simply says "bad credit accepted," compare the complete cost and conditions of each loan.

Step 1: Check Your Credit Report

Before applying for a personal loan, review your credit reports.

Your credit report contains information about your credit accounts, payment history, and current credit situation. Lenders may use this information when evaluating your application.

Look for:

• Incorrect personal information
• Accounts you do not recognize
• Incorrect payment history
• Outdated account information
• Incorrect balances
• Duplicate accounts
• Collection accounts that contain errors

If you find inaccurate information, you can dispute it with the appropriate credit reporting company and the organization that supplied the information.

Checking your own credit report does not hurt your credit score.

Step 2: Understand Why Your Credit Is Low

Before borrowing, try to identify the reasons behind your credit problems.

Common factors can include:

• Missed payments
• High credit card balances
• Accounts in collections
• Short credit history
• Multiple recent credit applications
• Defaults
• Bankruptcy
• High overall debt

Understanding the problem can help you decide whether borrowing now makes sense or whether it would be better to spend some time improving your financial position first.

Step 3: Determine How Much You Actually Need

Avoid borrowing more than necessary.

Start by calculating the exact amount required for your intended purpose.

For example, if you need $5,000 for a necessary expense, applying for $10,000 could unnecessarily increase your monthly payment and total borrowing costs.

A smaller loan may also be easier to repay.

Step 4: Review Your Budget

Before accepting a loan, calculate whether you can comfortably afford the payment.

Consider your:

• Monthly income
• Rent or mortgage
• Utilities
• Food
• Insurance
• Existing debt payments
• Transportation costs
• Medical expenses
• Savings contributions
• Other recurring expenses

A lender's approval does not automatically mean the loan is affordable for you.

Your goal should be to find a payment that fits your budget without putting essential expenses at risk.

Step 5: Compare Multiple Lenders

One of the most important ways to find a better personal loan is to shop around.

Potential lenders include:

• Banks
• Credit unions
• Online lenders
• Community financial institutions
• Other legitimate lending companies

Different lenders may evaluate borrowers differently. One lender may decline an application while another may offer financing with different terms.

Compare multiple offers instead of assuming the first approval is the best option.

Step 6: Compare APRs

APR is one of the most useful numbers for comparing personal loans.

The interest rate represents the cost of borrowing. APR can include the interest rate plus certain additional fees associated with the loan.

For example, two lenders may offer similar interest rates but have different fees. Comparing APRs can help you better understand the overall cost.

When comparing loans, look at:

• APR
• Interest rate
• Loan amount
• Repayment term
• Monthly payment
• Origination fee
• Late fees
• Other charges
• Total repayment amount

Step 7: Understand Loan Fees

Bad-credit borrowers should pay particular attention to fees because a loan with an attractive advertised rate may still be expensive.

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Possible personal-loan fees include:

• Origination fees
• Documentation fees
• Late-payment fees
• Returned-payment fees
• Other lender charges

The CFPB recommends reviewing the lender's loan disclosures and documents to understand applicable fees before accepting a personal installment loan.

Step 8: Consider a Credit Union

Credit unions can be another option for borrowers looking for personal financing.

Depending on eligibility and the institution, a credit union may offer different loan products or underwriting criteria from a traditional bank or online lender.

Compare the actual APR, fees, loan amount, and repayment terms rather than choosing a lender solely because it is a credit union.

Step 9: Consider a Secured Loan Carefully

A secured loan uses an asset as collateral.

Because the lender has an interest in the collateral, secured financing may have different eligibility requirements or pricing from an unsecured personal loan.

However, there is an important risk: if you fail to repay the loan, you could potentially lose the asset securing the debt, depending on the agreement and applicable law.

Never pledge an essential asset without carefully considering the consequences.

Step 10: Consider a Co-Signer

A co-signer with stronger credit may improve your ability to qualify or potentially help you obtain better terms.

However, co-signing creates significant responsibility for the co-signer.

If you fail to make payments, the co-signer may be responsible for the debt. Missed payments may also affect both parties' credit histories.

Anyone considering co-signing should fully understand the loan agreement before agreeing.

Be Careful With "Guaranteed Approval" Offers

Borrowers with bad credit are often targeted by advertisements promising easy or guaranteed loans.

Be cautious.

Legitimate lenders generally evaluate your application and creditworthiness before making a firm credit decision. The Federal Trade Commission warns consumers about advance-fee loan scams in which companies promise financing but demand money upfront. 

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A lender that says you are guaranteed to receive a loan regardless of your credit history should be treated as a major warning sign.

Never Pay for a Guaranteed Loan

An especially important warning sign is a request for money before you receive the promised loan.

A scammer may call the payment:

• Processing fee
• Insurance fee
• Application fee
• Security deposit
• Verification fee
• Administrative fee

Not every fee associated with lending is automatically fraudulent, but a demand for an upfront payment in exchange for a guaranteed loan is a serious red flag.

The FTC specifically warns against advance-fee loan scams targeting consumers with bad credit.

Be Careful With Payday and Title Loans

When traditional lenders reject an application, some borrowers turn to payday or vehicle-title loans because they may appear easier to obtain.

However, these products can carry significant costs and risks.

Before accepting short-term financing, compare:

• APR
• Finance charges
• Repayment schedule
• Renewal or rollover provisions
• Late fees
• Consequences of default

The lowest qualification requirements do not necessarily mean the lowest borrowing cost.  

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Look at the Monthly Payment and Total Cost

A low monthly payment can sometimes be misleading.