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Updated on Thursday, January 23, 2020
If you have bad credit, it can be difficult qualifying for a personal loan. Some of the best personal loans for bad credit — defined here as a credit score below 640 — come from lenders who consider other information in addition to your credit score. These lenders might not offer the lowest interest rates or biggest loan amounts, but you won’t be automatically disqualified just because your credit is less than stellar.
Read on to learn about the personal loan products we selected.
The 3 best personal loans for bad credit
LendingPoint offers personal loans for fair credit borrowers. Although loan amounts are restrictive, the lender has more repayment terms to choose from (though a shorter maximum term) compared to the other options included here. The funds can be deposited the next business day after loan approval, as well.
LendingPoint considers more than your credit score when reviewing your application. The lender looks at factors such as:
- Job history
- Financial history
- Credit behavior
When applying, you can expect LendingPoint to request additional documentation, such as proof of income and recent bank statements.
Peerform is a peer-to-peer lending platform through which borrowers may access personal loans. These loans come with the lowest APR range and the lowest maximum origination fee among the personal loans we reviewed on the MagnifyMoney marketplace for borrowers with credit scores below 640. That means Peerform may be a good option for bad credit borrowers hoping to minimize their overall cost of borrowing.
Potential borrowers should know that the process of getting a loan through Peerform is different from getting a loan through a traditional lender. After you register on Peerform and select your loan terms, your loan inquiry will be listed on the Peerform platform. From there, investors can choose to fund your loan.
The minimum credit score requirement for Peerform is reasonable, at 600. But as with any unsecured personal loan, only the most creditworthy borrowers will qualify for the lowest interest rates. Further, the loan amounts are more restrictive than for those offered through Upstart and LendingPoint.
Upstart’s APR range is slightly higher than the two competitors in our selection. This includes a higher cap on the origination fee. Although Upstart has a higher credit score requirement than Peerform and LendingPoint, the lender specifies on their website that it considers education and employment information in their underwriting.
Upstart offers the most generous loan amount range, potentially making them a good option if you want to borrow either very small amounts (less than $2,000) or large amounts (more than $25,000). Once your loan is approved and you accept it, you can receive funds as soon as the next business day.
How to compare and choose a personal loan
When comparing personal loans to find the best one for your financial situation, it’s important to read the fine print and make sure you understand each lender’s terms and conditions. The table below details important features to consider.
APR (annual percentage rate) is the primary factor in determining how much your loan will cost over time.
Credit score requirements
Look for credit score requirements or a pre-approval tool to figure out your chances of approval before applying.
The loan amount determines how much money you can borrow, although only the most creditworthy borrowers will qualify for the highest loan amounts.
The loan term determines how long you have to pay off your loan. The longer the loan term, the lower your monthly payments, but a long loan term also means paying more in interest.
Origination fees are charged by some lenders in order to process your loan, and they're typically deducted from your loan amount upfront.
Prepayment fees are charged if you pay off your loan ahead of schedule and should be avoided when possible.
Late payment fee
Late payment fees are charged if you miss a loan payment. Avoid these by always making payments on time.
Check processing fee
Many lenders charge a check processing fee if you choose to make your loan payments by physical check rather than electronically.
While personal loans are flexible, you can't always use them for any purpose. Check if there are restrictions on how you can use your funds.
The primary factors to consider are the APR — essentially the cost of your loan — as well as the loan term, loan amount and credit score requirements. If those factors match up with your needs, move on to considering other fees, such as origination fees, prepayment fees, late payment fees and check processing fees.
Finally, make sure that the personal loan you’re considering can be used for your needs. Some personal loans are geared toward paying off or consolidating debt, while others might be designed to pay for home improvements or a new car. By going through this checklist, you’ll be more likely to find a personal loan that’s the best fit for you.
The application process for a personal loan
- Determine your eligibility: Each of these lenders offer a pre-qualification tool that allows you to check what loan rates you might qualify for without impacting your credit. Use these tools to determine whether or not you’re eligible for the loan you need.
- Consider adding a cosigner: It’s easier to get a competitive interest rate for your credit profile if you can find a cosigner to lean on. However, this person will be held responsible for your debt if you can’t pay it off, so make sure you have a solid plan in place to repay your loan.
- Prepare your loan materials: To complete most loan applications, you’ll need to provide basic information like your full name, address and social security number, plus any documents required to verify your identity and income. These can include a driver’s license, passport, or government-issued ID, pay stubs, bank statements and information regarding your current debts if you’re consolidating.
- Complete the loan application: Once you’ve gathered the necessary materials, you can fill out your chosen lender’s online application form. You might receive a decision immediately, or the lender may ask to see additional materials to verify your income and identity. With peer-to-peer lending platforms, your loan will need to be funded by investors before you can receive your money.
- Add a bank account to receive your funds: If you’re approved, you’ll need to add and verify a bank account where you’d like your funds to be deposited. You’ll then receive your funds within one day to two weeks, depending on the lender.
- Follow up with lenders that reject you: If you’re rejected for the loan of your choice, it can be helpful to follow up with the lender and ask why. Their answer will provide guidance as to how you can improve your chances of approval.
Alternatives to a bad credit personal loan
- Ask for help from friends and family: One of the best alternatives to a bad credit personal loan is borrowing from friends and family. Even if they charge you interest, you’re likely to save the most money with this method. Just make sure you have a plan to repay the loan, or you could risk destroying important relationships.
- Consider a home equity loan or line of credit (HELOC): If you’re a homeowner who has paid off a portion of your home, you may be able to take out a loan against the equity in your house. Home equity loans and HELOCs tend to be easier to qualify for and offer lower rates because you offer your house as collateral. Just know that you risk losing your home if you don’t pay off the loan.
- Secured loan:Secured loans are backed by collateral as well, making it easier to qualify for lower interest rates. Aside from borrowing against your house, you can often borrow against other property such as a car or a boat, or even an upfront deposit. Again, you risk losing your collateral if you don’t pay off the loan on time.
- Charge a credit card: Credit cards can come with higher interest rates than personal loans depending on your credit. However, if you need money now and can’t qualify for lower interest rates, you might be better off charging a credit card. Make sure you pay off your balance diligently to minimize interest charges.
Improving your credit score for future loans
If you can’t get approved for the best personal loans for your credit profile, it might be worth trying to repair your credit before you borrow money. A better score will help you qualify for loans with better terms and lower interest rates.
While improving your credit takes time, you’re bound to see your credit score increase if you can consistently follow the steps below:
- Go through your credit report and dispute any errors
- Pay all of your bills on time, and make any late payments before your debt goes to collections
- Pay off debt, focusing on paying down high credit card balances first
- Consider applying for a secured credit card and using it responsibly and regularly
Our selection of personal loan lenders for bad credit was based on offers listed on MagnifyMoney’s personal loan marketplace. Lenders were chosen on December 18, 2019 assuming:
- Credit score of poor (below 640)
- Loan amount of $5,000
- Zip code 11220
Lenders were chosen based on APR ranges for each of the above credit score ranges. Ties were broken by assessing: 1) Origination fees 2) flexibility of term lengths. Lenders who do not specify credit score requirements on their website were excluded when assessing lenders for borrowers with poor credit.