How to Get an Emergency Loan With Bad Credit

If you've been working to build your credit, you might be trying to avoid taking on more debt. But emergencies don't wait for your score to recover.

When you need money now and your credit isn't where you'd hoped, it's useful to explore options available to you. And also know which ones can cost you more than they solve.

Can you get an emergency loan with bad credit?

Yes, it’s possible to get an emergency loan with poor credit. Your options might be more limited than for someone with strong credit, but many lenders lend to borrowers with less-than-ideal credit scores.

Before you start looking for a loan, note that some options are better than others — with others worth steering clear of entirely.

A typical two-week payday loan charges a fee of $15 to $30 for every $100 borrowed — an annual percentage rate (APR) of nearly 400%, according to the Consumer Financial Protection Bureau. If you can’t afford to pay off your loan right away, you could find yourself trapped in a short-term debt cycle.

Consider talking with a financial advisor or nonprofit credit counselor for guidance specific to your situation. The National Foundation for Credit Counseling (NFCC) offers free or low-cost counseling at 800-388-2227.

Read more >> Pros and cons of payday loans

A typical two-week payday loan charges a fee of $15 to $30 for every $100 borrowed — an annual percentage rate of nearly 400%.

Types of emergency loans for bad credit

You likely already know it’s best to avoid payday loans if you’re experiencing a financial emergency. Many people turn to payday loans because they think they have no other options, but you might be able to access an alternative.

Personal loans for bad credit

Online lenders have proliferated in the past few decades. Because the online financing market is so saturated, many of these lenders have moved into specific niches. One of those is bad-credit lending.

If you need a personal loan with poor credit, digital lenders are often more accessible than traditional banks. Many advertise minimum credit score requirements of 580, which is the low end of FICO’s “fair” range. Some look beyond your score entirely, weighing alternative factors like income, employment history, and savings.

As you compare options, look at the full APR, and not just advertised rates. Lenders often reserve the best rates for those with the highest credit scores. Note that some loans charge origination fees of up to 10% of the loan amount up front, which means you’ll receive less than you’re approved for. And make sure you can comfortably manage the repayments to avoid needing to renew the loan.

If you’re approved for a personal loan, the lender typically deposits funds into your bank account within a day or two.

Payday alternative loans (PALs)

Depending on your exact credit score, you may not qualify for a personal loan from a traditional or digital lender, or if you do qualify, you may find only high interest rates.

Payday alternative loans (PALs) were created for people in your situation. They’re short-term loans offered by federal credit unions, and they’re designed to serve as a less predatory alternative to short-term loans.

PAL interest rates are capped at 28%, with rules prohibiting rollovers and limiting how many you can take in six months. This structure is what keeps PAL balances from snowballing the way payday loans do, since payday debt typically compounds through repeated borrowing rather than the rate alone.

Federal credit unions can also charge application fees of up to $20, which isn’t included in the rate.

Credit union loans

Federal credit unions often offer PALs for those with bad credit, but state and local credit unions may also have strong loans worth considering.

Depending on the individual credit union and your current credit score, there’s a chance you won’t qualify. However, because credit unions invest in their communities, they’re often more willing to lend to people with not-so-great credit than traditional banks are.

Secured loans

Most personal and emergency loans are unsecured, meaning there’s no collateral for the lender to take if you stop paying. Loans secured by collateral are less risky for lenders, so if you’re having trouble getting approved for a loan, it might be worthwhile to start looking at secured loan options.

Many lenders who loan money to people with poor credit offer secured loans. These loans require the borrower to designate a type of property as collateral, such as your car (assuming you own it free and clear).

In this example, you could still keep and drive your car as you pay off the loan. However, if you can’t repay, the lender may seize your vehicle and sell it to recover their money.

Cash advance apps

If you only need a relatively small amount of funds in an emergency, taking out a loan may not be practical. Cash advance apps may better fit your needs.

These apps typically follow five general steps:

• You link your bank account to the app
• The app scans your banking history to look for regular payroll deposits
• The app sets a borrowing limit based on income — typically $20 to $1,000
• Cash is sent to your bank account when you need an advance
• The app automatically deducts the loan amount on your next payday

Cash advance apps are convenient, but they aren’t right for everyone. If your income doesn’t show up as a predictable, recurring direct deposit to your bank account, you may not be eligible.

Read more >> What can you get approved for with a 580 credit score?

What to watch for with emergency loans

When you’re desperate for financial help, it might be tempting to accept the first loan you’re offered. However, if you accept a loan with predatory terms, you could end up in even worse financial straits. When researching lenders and applying for loans, make sure to keep an eye out for the following.

High interest rates and fees

You know to avoid high interest rates, but you might not know that you need to look closely at three key fees associated with the loan you’re considering:

• Origination fee — a charge for processing and issuing the loan, often taken out of your funds before they’re disbursed
• Late fee — a penalty charge assessed if you miss a payment
• Prepayment penalty — a financial penalty if you repay the money early

If you qualify for multiple loans, comparing fees and interest rates across offers can help you find a lower-cost option.

Predatory lenders and payday loan traps

Payday loan companies and other predatory lenders charge extremely high interest rates, which are specifically designed to make repaying the debt difficult. If you can’t repay on time, you can usually “roll over” the balance. This comes with extra fees, and the amount you owe can grow rapidly.

Loans that don't report to credit bureaus

An advantage of taking out a loan is that repaying it on time helps you establish a positive credit history. However, some lenders don’t report to credit bureaus at all. This is common with payday lenders.

Your credit can still suffer if you fail to repay a lender who doesn’t report to the bureaus. When this happens, the debt is usually sent to collections and appears on your credit report.

Alternatives to emergency loans

If you have poor credit and need money in a hurry, emergency loans aren’t your only option.

Negotiate with your creditors

If you’re running short on money and can’t pay an upcoming bill, try contacting the creditor directly and asking for grace. Many creditors are willing to work with consumers, especially if they reach out before missing a payment.

Kikoff's debt negotiation tool makes that contact for you and brings back an offer, usually within five business days. You decide whether to accept it.

Look into local assistance programs

Many cities and counties offer emergency financial assistance to local people in need. If you don’t know what types of assistance programs there are in your area, you could be missing out on much-needed financial support. Call 211 or visit 211.org to learn about available programs and see whether you qualify.

Borrow from family or friends

This option isn’t always possible, especially if you need a large amount of money. However, most friends and relatives will want to help if they can. Consider asking your loved ones for financial aid before you start applying for loans.

Build the credit you’ll need next time

You shouldn’t have to choose between a predatory rate and no options at all. Even a modest improvement in your credit score can unlock better terms, lower rates, and real breathing room.

Kikoff gives you the tools to get there: a revolving line of credit that reports to the three credit bureaus, rent reporting, dispute resolution, and guidance built for people building from a tough spot. Sign up today, no hard credit check required.

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