How to Get a Personal Loan With Bad Credit

If you are looking at personal loan options and your credit score is on the low side, getting approved can be a struggle. While it’s still possible to qualify for personal loans for bad credit, you need to be strategic in your approach. 

Here’s how to get a personal loan with bad credit, including what to avoid so that you don’t unintentionally put yourself in a financial bind.

How to get a personal loan with bad credit in 3 steps 

If you have poor credit and need to get a personal loan, you’ll want to take these three key steps:

1. Know where you stand before you apply

There are plenty of free apps out there that give you an estimate of your credit score. Your current bank or credit union may even offer credit score reporting. 

These scores usually use the VantageScore model, whereas lenders typically use FICO for making lending decisions. Still, the scores should be relatively similar, helping you get an idea of where you stand. 

2. Check your credit score and report

Next, review your credit report to see what your financial situation looks like. You are allowed to receive one free credit report every 12 months from each of the three major credit bureaus. When you get your report, look for errors, late payments, or anything else that could be damaging your score. If you spot a mistake, consider disputing it. 

3. Understand what lenders are looking for

Even if an applicant has bad credit, lenders will evaluate several other factors to make their decision. These variables can include:

• Income and employment stability
• Debt-to-income (DTI) ratio
• Recent payment behavior
• Banking history

Lenders want to know if you can realistically repay the loan. While high income and a low DTI won’t necessarily offset a low credit score, you may be able to get approved if you appear to be in a good position to pay back the loan. 

Where to look for personal loans with bad credit

Once you understand how to get a personal loan with bad credit, you can begin exploring lenders and potential loan options like these:

Credit unions

Smaller credit unions may offer lower interest rates and more flexible approval criteria compared to regional or national banks. If you’re a member or can become one, this is one of the best places to start your search for personal loans for bad credit. 

Online lenders

Online lenders may be able to offer a quick approval process and rapid funding. Make sure to compare a few different lenders to find the best rates and terms. Look out for questionable institutions that may be predatory. 

Secured personal loans

A secured personal loan requires collateral, such as a vehicle, savings account, or other valuable asset. Because the lender is taking on less risk, these loans are often easier to qualify for, even with poor credit. You may even be eligible for a relatively low interest rate since you are putting up collateral. 

Co-signer loans

If you have a trusted friend or family member with good credit, they may be willing to co-sign the loan for you. A co-signer can improve your approval odds and help you qualify for better rates. Just remember, if you miss payments, your co-signer is equally responsible. 

What to watch out for when you have bad credit

Personal loans for bad credit can come with certain risks. Keep an eye out for the following:

Predatory lenders and high APRs

Unfortunately, some lenders will try to take advantage of consumers in need of fast cash. They do this by offering unreasonable repayment terms and extremely high interest rates. If an offer seems too good to be true, or too expensive to realistically repay, it probably is. 

Origination fees and prepayment penalties

Always read the fine print. Watch for origination fees and prepayment penalties, as these factors can drive up your cost of borrowing. 

How to improve your approval odds before applying 

If you’re seriously considering how to get a personal loan with bad credit, a little preparation can go a long way. Here are some smart steps to take before applying:

• Pay down existing debt, which will lower your utilization and improve your profile
• Make consistent on-time payments
• Increase your income, if possible
• Limit new credit applications

You can also focus on building positive credit activity over time. For example, platforms like Kikoff allow you to establish a payment history without a hard credit check. 

Conclusion

If you don’t need a loan right now, but are looking for ways to build your score, Kikoff can be the right option. Our credit-building platform offers several different tools to help you raise your score over time, such as a free credit account, verified rent reporting, and invite-only credit-builder loans. We also can provide you with a secured credit card.

When you use these tools to strengthen your score, you can improve your eligibility for loans in the future. Build credit with Kikoff — no hard credit check to sign up.