The Best Personal Loans For Bad Credit (2023)

The Best Personal Loans For Bad Credit In 2023

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A good credit score can help you get a loan at any reputable bank with favorable terms. However, it may be difficult to be approved for a loan if you have bad credit, a low credit score, or a no credit history. Financial institutions require that borrowers submit loan applications showing their income information and consent for the institution to check their creditworthiness before being qualified for a loan.

Often lenders favor customers with a tangible credit history or a record of clearing their bill in time. Banks also want individuals with steady incomes with a high probability of staying on top of debts as they honor terms and agreements. However, it does not mean that there are no personal loans for bad credit.

FICO defines bad credit with a credit score range of 350 to 579, and having such a score means that you will probably need a co-signer; otherwise, you may not qualify for a personal loan. The FICO scale shows that a good credit score begins from 670, though VantageScore begins at 661.

If your credit score is between 740 – 800, it is considered very good, while a score above 800 is excellent. You may be having a credit 670 credit score and get scared that you may not qualify for good financial products; however, some lenders can take you in by offering personal loans for bad credit. You could be needing money for medical bills, refinancing debts, auto repairs, or consolidating debt payments.

You may qualify for some personal loan for bad credit to defray these bills, but some lenders will put a high-interest rate on the loan or tack the original fees since you are considered risky. Therefore, if your credit is not perfect, it is recommended you do thorough research before committing by the dotted lines to be sure you are okay with the terms of the loan.

What is a Bad Credit Score?

The most common credit-scoring model to help determine credit score is the FICO credit scoring system. It ranges from 300 to 850, with the least score meaning poor credit and risky borrowers, while the highest score is considered excellent. The middle-level score is described as fair, with a score range of 580 to 669.

A poor credit score can be bad for your loan approval and sometimes your ability to renting or purchase a home. Over time you could take some practical steps, such as prompt payment of bills and regular checks on the report to correct any errors hurting your credit and improve your credit score.

What Contributes to a Bad Credit Score?

FICO credit score shows some of the things that can contribute to a bad credit score, including:

  • Your payment history @ 35%
  • Amounts owed @ 30%
  • Length of your credit history @15%
  • New credit @ 10%
  • Credit mix @ 10%

There are the correct standards of a credit score, and if your fall short, then expect a drop in the score. The list shows that payment history has the most impact on your credit score. You may end up with a bad credit record due to foreclosures, bankruptcies, and huge debts on your income.

How to Acquire a Personal Loan for Bad Credit

Though difficult, it is not impossible to get a personal loan for bad credit. You need to do a diligent search to get an affordable one that will not stretch you beyond limits. Consider these few steps to help with this goal if your credit score is far from perfection:

1. Check Your Credit score

Each year, you can get one free credit report from national credit reporting agencies and is printed from This report does not show your credit score; you will need to buy it from the credit bureaus or request your financial institution for a free one.

2. Take a Loan You are Confident You Will Pay

It is prudent to examine your home budget to confirm if you can take in additional monthly loan payments with ease.

3. Compare the Available Bad Credit Personal Loans

If you discover that your credit union or bank accounts are in good standing, you can inquire if you qualify for a personal loan. Additionally, you can research other institutions offering bad credit personal loans online by examining the lenders’ independent reviews and print copies of their terms and conditions.

4. Use Prequalification

Several online lenders allow prospective borrowers to apply for prequalification, which involves a light check on their credit to determine if you’ll qualify for a loan without doing a hard credit check that could hurt your credit score.

5. Consider Secured loans

You can also take advantage of banks that offer secured personal loans to those with below-average credit. These loans are guaranteed by an asset, such as your car or home, though they often have lower APRs.

6. Use a Co-Signer If Needed

A co-signer agrees to take partial responsibility for the loan and could be demanded by the lender to pay your loan should you fall behind on your payments. The co-signer should have good credit to help you get a favorable loan with low-interest rates.

7. Collect Financial Documents

Personal loan applications will require that you provide relevant financial documents, including tax documents, stubs, and employment information.

8. Be Ready for a Hard Credit Check

Though some lender allows you to prequalify without a deep look into your credit look into your record; the actual application will necessitate an inquiry into your credits, thus temporarily damaging your credit score.

You can protect your financial health by researching the loan and the institutions awarding these loans before you apply for a personal loan for bad credit. Educating yourself is very important as you shop to get the best products to help you attain your financial goal.

The Criteria for Choosing the Best Personal Loan for a Bad Credit Company

You cannot get a single loan company that suits everyone because individual circumstances and need differ. Several factors are involved in determining what is best for you, including:

1. Eligibility Requirements

You can get information on eligibility requirements on some lenders’ websites, such as minimum income levels, minimum credit scores, and maximum debt-to-income ratios.

2. Interest Rate and Fees

Different lenders have varying criteria for calculating interest rates. You can know this by requesting a quote from some potential lenders you are considering and comparing their original fees, interest rates, and prepayment penalties to help you know which company offers the cheapest interest for you.

3. Repayment Terms

Most lenders offer a personal loan repayment period of between one to twelve years. A shorter period signifies that you will be out of debt sooner, paying less interest rate. On the other hand, a longer loan repayment period will mean you will pay a higher interest rate in the long run and will likely reduce your monthly bill.

4. Type of Lender

Personal loans are provided by online lenders, credit unions and banks with online lenders offering lower interest rates. However, they will not provide the in-person service you would receive from a bank. Using a local credit union has other benefits since they could be willing to extend you a personal loan despite your bad credit because of an existing relationship.

Types of Personal Loans for Bad Credit

Bad credit offers you two main options of personal loans: unsecured and secured loans. However, if you have met hurdles with traditional loan qualification, you may have other options as explained below:

1. Secured and Unsecured Personal Loans

Secured loans are guaranteed by collateral, such as a car or home before the banks offer you the loan. You can get favorable terms, rates, and improved loan limits with collateral because the collateral will push you to pay the loan. If your credit score is less favorable, we recommend taking a secured loan for better terms than an unsecured one. Secured loans push you to repay the loan; otherwise, you stand the risk of losing your car, home, or any other collateral against the loan. Common secured loans include auto loans, home equity loans, and mortgages, though some lenders provide secured personal loans.

Unsecured loans require no security and the credit limit and interest rates depend on y your creditworthiness, which means that those with below-average credit scores may find it hard to qualify for these loans. Because there is no security attached to them, it will carry a low credit limit and high interest, though you have the advantage of not losing the asset should you fall behind schedule with your payments.


Most personal loans have high loan limits, and there is no need for collateral to qualify if you have a fair credit score.


Unsecured loans have high APRs above the normal rate, and sometimes you may not qualify for the loan.

You can easily use secured and unsecured to acquire personal loans for your projects; however, it is wise to weigh the pros and cons to ensure you are not injuring valuable assets.

2. Payday Loans

They are short-term loans whose value ranges from $500 or less; you could apply for an emergency before your payday. Often these loans charge exorbitantly high fees for the fast cash they are giving you, and you are expected to repay from your next paycheck.


Lenders will not run a hard credit check on your creditworthiness, meaning you can easily qualify for a loan here than you would with other lenders. Your credit score will not be affected because the lender does not inquire.


The cost of a payday loan is high- can rise to 400%- hence the need to weigh other options before considering it.

Care should be taken because this loan can plunge into serious debt owing to its insane interest rate.

3. Cash Advance

This loan resembles the short-term loan provided by a credit card issuer. The cash you receive once you are approved is disbursed in cash and borrowed from your credit card balances.


It is easily accessible and could come in handy if you need emergency funds.


If your credit card is unsecured, the interest rate from a cash advance will be higher than the card’s APR and personal loans’ interest rates.

The cash advance can be used in paying off unexpected expenses; however, you should not frequently use it. It does not have any grace period, with interest accruing immediately after acquisition, putting you in a precarious financial situation.

4. Bank Agreements

Some banks can offer their clients with bad credit a minimal overdraft agreement or short-term loan. This provision is available for individuals with a bank history and income ability to continue operating the account. You could ask your bank to confirm if they offer these services.


It can prove to be an excellent short-term solution for those with a good relationship with their financial institution.


The agreement is not an official policy; they do not provide clients with a reliable borrowing platform.

5. Home Equity loans

Home equity loans behave like personal loans by disbursing an upfront lump sum of money, requiring repayment at a fixed monthly installment. You could use your home as security, meaning that your lender can come for your house in the invent you fail to make payments. Nevertheless, you will benefit from a low-interest rate due to security than you would for a standard personal loan.


Since it needs collateral, they are easily accessible for those with bad credit.


If you fall back on your monthly payments in time, you could lose the home that you used as collateral.

Home equity loans are appropriate for homeowners who may need a large lump sum of money, such as debt consolidation or home improvement projects.

6. HELOCs for bad credit

They operate like home equity loans because they rely on home equity with your home as collateral. HELOCs, differ from home equity in functionality because they allow you to borrow what you need when you want to use it, like credit cards. You will then repay the loan at the variable interest rate.


It provides you credit at your pace, meaning if you have few home improvements to be done over time, you can choose HELOCs to get these funds.


Your home is the collateral, and should you fail to make monthly repayments, you risk losing your home.

HELOCs can benefit individuals with bad credit since your home will secure your loan. It will be an ideal option if your want the money in bits, not upfront as with home equity.

The Takeaway

Having bad credit or no credit history is not the end of your loan options, though it will limit you and probably result in high-interest payments. Before signing for any bad credit personal loan, you should do thorough research on the prospective lender and make a comparison to ensure that you are comfortable with the loan terms and conditions.

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I am full-time financial writer working with various institutions around the globe. With years of experience writing editorial pieces for Business Daily, a publication of Nation Media Group Kenya, I deliver insightful pieces for start-ups and established businesses. I have a degree in commerce and accounting from Kenyatta University, with decades of experience in writing educative and unbiased articles on finance, business, and health. I am currently living in Nairobi, Kenya with my wife and baby girl.

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