Updated November 03, 2017
Don’t have a credit history established, or have a low credit score? It can be challenging to find lenders that will approve you if you have a thin credit file or poor credit, but it’s not impossible.
You still have options when it comes to personal loans, and these options come from reputable lenders.
What’s even better is that these lenders will only conduct a soft credit inquiry when you apply to find out what rates they can offer you. This means your credit score won’t be negatively affected, so you don’t have to worry about damaging it further.
In this article we'll review how to find reputable lenders, why you should stay away from two popular options people turn to when they’re in a poor credit situation: payday and title loans. And what you can do to increase your credit score.
Check for approval without a credit hit
It’s worth noting low scores aren’t always indicative of how responsible you are with credit. A low score, or thin file, could just be a result of a short credit history. If you have a clean history (no late payments, low credit utilization, etc.), you’ll have an easier time obtaining a loan over someone who has had delinquencies on their record, but might have a higher score.
If you have bad (or no) credit, you should apply to as many lenders as possible that use a soft pull to ensure you don't hurt your credit score. We recommend starting with LendingTree, where you can use one short application form to get rates from multiple lenders at one.
LendingTree: Dozens of lenders partner with Lending Tree - and many of them may approve people with poor or no credit. You can fill out a simple form and compare multiple offers in minutes. We highly recommend starting your shopping experience here first to have a good chance of getting a loan. (Note: MagnifyMoney is owned by LendingTree)
Here are 5 personal loan lenders for people who have less than ideal credit (meaning under 700) that will let you check your rate without impacting your credit score:
OppLoans: If you have no or bad credit, OppLoans is an online lender that could help. If your credit score is below 630 (or if you have no credit score at all), OppLoans will work with you. You can check to see if you are approved without impacting your score. And - unlike payday lenders - OppLoans offers much more affordable borrowing options. They also have great reviews - with a customer service rating of 4.9/5 stars.
LendingClub: People with credit scores below 600 can get approved. You can borrow $1,000 - $40,000 and get the money deposited into your account within a few days. Fixed APRs range from 5.99%-35.89% on terms up to 5 years. LendingClub has an origination fee of 1%-6% on its loans. LendingClub is not available in Iowa or West Virginia.
Upstart: Borrow between $3,000 and $50,000 for up to 5 years with APRs ranging from around 7.43% to 29.99%. While the minimum credit score needed to qualify is 640 (Upstart will also consider applicants who don’t have a score), you must have a clean credit history. You could also be eligible for next day funding.
Avant: You could borrow anywhere from $2,000 to $35,000 through Avant, and you could receive your funds as soon as the next business day. APRs range from 9.95% - 35.99%. Although the minimum credit score varies, you have a much better chance if your score is above 580. Avant is available in all states except Colorado, Iowa, West Virginia, and Vermont.
Prosper: Another peer-to-peer marketplace lender, Prosper’s loans are similar to LendingClub’s. You can borrow $2,000 to $40,000 with APRs ranging from 5.99%-35.99% on 3 and 5 year terms. There’s an origination fee of 1%-5%, and its minimum credit score is 640.
There are several other personal loan lenders that will do a soft credit check. You can find them on our personal loan table here. While many of these lenders have minimum credit score requirements, you’ll find they take other factors into account aside from your FICO score.
Additionally, since these lenders only do a soft credit pull, you’re free to shop around for the best rates without fear of damaging your credit score.
Why You need to Stay Away from Payday Loans and Title Loans
Not eligible for personal loans? Don’t turn to payday loans or title loans.
If you’re not familiar with either, you might be wondering what’s so bad about them. After all, they seem convenient – most offer “fast cash,” and if you live in a populated area, you’ll probably find a payday loan or title loan shop nearby.
However, both require you to give something in exchange for funds, and neither require any sort of stringent approval process to ensure borrowers can afford the loans.
Payday loan companies require you to write a check for the amount you wish to borrow, plus a set fee. The lender holds onto the check until the loan becomes due (typically on the borrower’s next payday, hence the name), and gives the borrower the money they need in the meantime.
The problem? If you can’t pay when the loan balance becomes due, you can choose to extend the term of the loan. When you do, you get hit with more fees. The APR on payday loans is extremely high, so you’ll pay more each time you extend your loan term.
Payday loans are on the smaller side – anywhere from $100 to $1,000. According to PayDayLoanInfo.org, the average term is two weeks, with 400%+ APRs. When you factor in fees, the APR can go up to 780%.
Title loans require you to give your car’s title to the title loan company in exchange for an amount equal to the appraised value of your car. You usually have to own your car outright to be eligible for a title loan, and the term is around 30 days.
Like payday loans, if you can’t pay on time, you may choose to roll the loan over to the next month, incurring more fees. If you can’t pay back the loan at all, you run the risk of the lender repossessing your car.
As you can tell, both of these options are bad ideas if you want to stay clear of getting into a horrible debt cycle. These loans are purposely too expensive for borrowers to afford. If people are looking for quick cash because they don’t have any, it stands to reason they’ll be in the same situation a week or two from the time they borrow.
Non-Profit Credit Counseling to Rebuild Credit Score
You want to make every effort to improve your credit score, even after you’re approved for a loan, because having a good credit score will benefit you in other areas of life. For that reason, you might want to consider teaming up with a non-profit credit counseling service.
These companies can provide you with personalized advice on your specific situation so you can work on rebuilding your credit score. They can also work with your creditors and negotiate on your behalf to possibly lower interest rates or get better terms on your existing debt.
It can be tricky to find a reputable credit counseling agency – even with a non-profit organization. If you’re interested in a credit counseling service, USA.gov lists a few considerations and questions you should ask before committing. You want to make sure the credit counseling agency is actually going to help you get your credit and financial situation under control.
Alternative to Ways to Build Your Credit Score
If you don’t qualify for a personal loan, and don’t want to turn to payday or title loans, there are a few steps you can take to increase your credit score. This post has 6 tips to help get you started. These methods won’t boost your score immediately, but over time, you’ll see an improvement.
The Federal Trade Commission also has 6 alternatives to payday loans on its website, which might apply to your situation. For example, if you’re a member of a credit union, you could inquire about a loan through them as you have an established relationship already.
Also, if you haven’t started budgeting and tracking your spending, you should – doing so can help you spot problem areas with your money.
Read the Fine Print and Shop Around
Regardless of which loan you decide to apply for, always consider the cost. You want to make sure you’re getting the best possible terms, which means getting the lowest APR offered. Typically, cash advances and credit cards are going to have higher APRs than personal loans but lower than payday lenders.
Remember to always read the fine print. Loans of any type have plenty of fees associated with them that you should avoid. Shop around for the best deals and work on improving your credit score so better options become available to you.
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