How to Get a Personal Loan With Bad Credit

Getting a personal loan with bad credit can be difficult, but a low score does not automatically rule you out. Lenders may also consider your income, existing debts, recent payment history, loan amount, and whether the loan is secured or has a co-signer.

The safest approach is to check your credit, decide what payment you can afford, compare offers without triggering unnecessary hard inquiries, and judge each loan by its total cost rather than the monthly payment alone.

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

1. Check your credit reports and scores

Start by reviewing your credit reports for inaccurate balances, unfamiliar accounts, or payments reported late by mistake. You can request free reports from Equifax, Experian, and TransUnion every week through AnnualCreditReport.com.

Your credit reports generally do not include a credit score. Your bank, credit card issuer, or a credit-monitoring service may provide one, but check which scoring model and bureau it uses. A lender may use a different model, version, or bureau, so the number you see may not match the score used for your application.

If you find an error, dispute it with the credit bureau displaying it and the company that supplied the information. Checking your own reports or scores does not create a hard inquiry.

2. Decide how much you can afford to borrow

Calculate the smallest amount that will meet your need, then test the payment against your regular budget. Include housing, utilities, food, transportation, insurance, minimum debt payments, and irregular expenses.

Lenders may calculate your debt-to-income ratio, or DTI, by comparing your monthly debt payments with your gross monthly income. DTI is an underwriting factor, not part of your credit score.

Do not assume that approval makes a loan affordable. A lender may approve a payment that leaves too little room for emergencies or changing expenses.

3. Prequalify and compare offers carefully

Some lenders let you check potential rates and terms through prequalification, which may use a soft inquiry. Confirm whether the lender will perform a soft or hard inquiry before submitting your information. A formal application typically creates a hard inquiry.

Do not assume that several personal-loan applications will automatically be grouped as one inquiry. FICO’s special rate-shopping treatment applies to mortgage, auto, and student-loan inquiries, not personal loans. Start with soft-inquiry prequalification when available, narrow your choices, and submit a full application only when the offer appears workable.

Compare each offer using the same loan amount and term. Review:

• Annual percentage rate (APR)
• Monthly payment
• Repayment term
• Origination and documentation fees
• Amount you will actually receive after fees
• Total of payments
• Late fees and returned-payment fees
• Prepayment penalty, if any
• Whether the rate is fixed or variable
• Collateral requirements

A lower monthly payment is not automatically a better deal. A longer term can reduce the payment while increasing the total amount you repay.

Where to look for personal loans with bad credit

Banks and credit unions

Start with financial institutions where you already have an account, then compare them with other banks and credit unions. Existing relationships do not guarantee approval or better pricing, and credit unions may have membership requirements.

Ask whether the lender offers prequalification, what credit inquiry it uses, and whether any fees are deducted before the funds reach you.

Online lenders

Online lenders may offer quick applications and funding, but speed should not replace comparison. Verify that the lender is licensed to operate in your state, read the loan disclosure, and compare the APR and total repayment cost with other offers.

Avoid entering sensitive information through an unsolicited email, call, or text. Go directly to the lender’s verified website.

Secured personal loans

A secured personal loan requires collateral, such as money in a savings account or another asset accepted by the lender. Collateral can reduce the lender’s risk and may make approval easier or improve the offered terms.

The trade-off is significant: If you default, the lender may take the collateral. Do not pledge an asset you cannot afford to lose.

Loans with a co-signer

A qualified co-signer may help you meet a lender’s requirements or receive different terms. However, the co-signer is legally responsible for the debt if you do not pay. Missed payments and default can affect both people’s credit, and the lender may pursue the co-signer for the balance.

The Federal Trade Commission recommends making sure the payment is affordable for both people and understanding the full obligation before signing.

What to watch out for when you have bad credit

High APRs and unaffordable payments

Bad-credit loan offers may carry high APRs. Before accepting one, calculate whether the payment fits your budget and how much you will repay over the full term. If making the payment would require skipping essentials or borrowing again, the loan is not a workable solution.

Origination fees and reduced proceeds

An origination fee may be deducted from the loan before the money reaches you. For example, if you borrow $5,000 and the lender deducts a $400 fee, you receive $4,600 but may still have to repay the full $5,000 plus interest.

The Consumer Financial Protection Bureau advises reviewing the loan disclosure for origination fees, documentation fees, optional insurance, late fees, and other charges.

Advance-fee loan scams

Walk away from anyone who guarantees approval and demands payment before providing the promised loan. The FTC warns that advance-fee loan scams often target people who have difficulty qualifying elsewhere.

A legitimate lender may disclose an application fee, but paying a fee cannot guarantee approval. Check the lender with your state banking or financial-services regulator before sharing personal information or sending money.

Prepayment penalties

Check whether the contract charges a penalty for repaying the loan early. A penalty can reduce the benefit of paying ahead or refinancing later. Do not assume you will qualify for a cheaper refinance in the future when deciding whether the current loan is affordable.

How to improve your approval odds before applying

If you can wait before borrowing, these steps may help you present a stronger application:

• Correct inaccurate information on your credit reports.
• Make every current payment on time.
• Reduce revolving balances when possible.
• Avoid unnecessary applications for new credit.
• Save toward the expense so you can request a smaller loan.
• Gather recent pay stubs, tax documents, or other income records the lender requests.
• Consider whether a lower-cost purchase or payment plan could reduce how much you need.

No single step guarantees approval or a particular rate. Lenders set their own eligibility and underwriting requirements.

Alternatives if the loan is too expensive

If every offer has an unaffordable payment or very high total cost, pause before signing. Depending on why you need the money, you could ask a service provider about a payment plan, contact a creditor about a hardship option, seek local emergency assistance, or speak with a reputable nonprofit credit counselor.

These choices will not fit every situation, but they may help you avoid replacing one urgent expense with a loan you cannot repay.

Read more >> Does Credit Counseling Hurt Your Credit Score?

Bottom line

You may be able to get a personal loan with bad credit, but approval is only the first test. Check your reports, borrow only what you need, use soft-inquiry prequalification when available, and compare the APR, fees, amount received, monthly payment, and total repayment cost.

If you do not need to borrow immediately, building positive payment history can help strengthen your credit profile over time. Kikoff’s free Credit Account reports your on-time payments to all three major credit bureaus, with no hard credit check to sign up. It can help you build credit, but it does not guarantee personal-loan approval or specific terms.

Use on-time payments to build credit with Kikoff.