5 Loan Options for Bad Credit

Updated on April 9, 2024

How Is Your Credit Score Calculated?

A credit score is tallied like a test. The calculation process has different questions. Your credit score depends on the outcome of each question. Let’s say the credit score test adds up to 100%. Your score will be determined by the following factors and the corresponding weight per factor:

  • Credit History – 35%
  • Utilization – 30%
  • Length of Use – 15%
  • Credit Mix – 20%

5 Options for Bad Credit Score


Other Options for Bad Credit

If you have bad credit, it can be challenging to get approved for a loan from a traditional lender like a bank. However, some specialized lenders work with borrowers who have less-than-perfect credit. Here are 5 loan options to consider if you need money but have bad credit.

Payday Loans

Payday loans are one of the easiest types of loans to qualify for with bad credit. Payday lenders offer small, short-term loans ranging from $100 to $1,000 that are tied to your next payday.

The catch is that payday loans charge extremely high interest rates and fees. It’s not uncommon to see rates over 400% APR. And if you can’t repay the loan on your next pay date, you can get stuck in a dangerous debt trap, taking out loan after loan to stay afloat.

So while getting approved is easy, payday loans should really only be used as an absolute last resort. The interest charges are simply too high compared to alternatives.

Pawn Shop Loans

If you have valuable items like jewelry, musical instruments, or consumer electronics, you can potentially pawn them in exchange for cash. The loan amount would typically be a portion of what the pawned item is worth.

You’d need to repay the loan plus fees and interest within an agreed timeframe, usually 30-90 days. If you repay the loan, you get your pawned item back. If you default on the loan, the pawn shop keeps the item and can sell it to someone else.

Pawn shop loans are easy to get with bad credit, but you may get much less than what your items are actually worth. You also risk losing valuable items if you can’t repay the loan on time.

Auto Title Loans

If you own your car or motorcycle free and clear, without any loans, you may be able to use your vehicle’s title as collateral for a title loan. This allows you to borrow up to 25-50% of the car’s value, which will be a larger amount than a payday loan.

Title loans do charge high interest rates like payday lenders, so they can get very expensive over time. There is also the risk of losing your vehicle if you default on the loan. Make sure to read the loan agreement carefully and only borrow what you know you can repay.

Credit Builder Loans

Some lenders offer “credit builder loans” specifically aimed at helping borrowers with bad or no credit establish a positive payment history and improve their credit scores over time.

These installment loans place the loan principal in a locked savings account. You make monthly payments on the loan for a period of 12-24 months. As you make on-time payments, the lender reports your positive payment activity to national credit bureaus.

Once you’ve paid all the payments and interest, you get access to the loan principal that has accumulated in your side account as a lump sum. Credit builder loans can be very useful for demonstrating you can handle credit and rebuilding your score.

Borrowing from Family/Friends

As a last resort, you may be able to borrow money from relatives, close family members, or friends. You can agree to repay them in installments over time. Ideally put the terms for interest and repayment timeframe into writing with a personal loan contract, though verbal agreements work too.

Borrowing from people you know has the lowest eligibility requirements but can also damage relationships if not handled well. Make sure to only borrow what you absolutely need and pay it back as soon as possible. Open communication is key.

Your credit score can define you in the eyes of a lender. That mysterious, magical number on your credit report is the single most important factor for securing a loan. Bad credit is, well, bad. But not having credit at all is also a major strike against you.

Frequently Asked Questions (FAQ)

What loan options are available for individuals with bad credit?

Individuals with bad credit can consider several loan options, such as:

  1. Secured Loans: Require collateral, like a car or home equity.
  2. Payday Loans: Short-term loans with high interest, to be repaid by the next payday.
  3. Cash Advances: Offered by credit card companies based on the available credit limit.
  4. Installment Loans: Paid back in regular, scheduled payments.
  5. Peer-to-Peer Loans: Funded by individual investors rather than traditional financial institutions.
  6. Online Lenders: Specialize in lending to people with bad credit.

Are there any risks associated with loans for bad credit?

Yes, loans for bad credit often come with higher interest rates and fees, which can lead to a cycle of debt if not managed properly. It’s important to read the terms carefully and understand the total cost of the loan.

How can secured loans be beneficial for bad credit?

Secured loans are beneficial as they typically have lower interest rates compared to unsecured loans. The collateral reduces the lender’s risk, making it easier to obtain the loan even with bad credit.

What should be considered before applying for a payday loan?

Before applying for a payday loan, consider the very high interest rates and fees, the risk of debt traps, and whether you can realistically repay the loan on your next payday.

Are online lenders a good option for bad credit loans?

Online lenders can be a good option as many specialize in bad credit loans. They often provide quick decisions and funding, but it’s important to check their credibility and understand the loan terms.

How do peer-to-peer loans work for individuals with bad credit?

Peer-to-peer loans involve borrowing money directly from individuals through online platforms. Lenders may be more willing to take on riskier borrowers, but interest rates can be higher.

Can improving my credit score help with loan options?

Yes, improving your credit score can significantly help in obtaining better loan options. Higher credit scores typically qualify for lower interest rates and better loan terms.

Are there specific loan options for emergency situations with bad credit?

For emergency situations, options like cash advances, payday loans, or short-term online loans can provide quick funding. However, they often come with high costs.

How can I identify predatory lenders when seeking bad credit loans?

Predatory lenders often have aggressive sales tactics, don’t disclose full loan costs, include hidden fees, and have excessively high interest rates. It’s important to research lenders and read all loan documentation.

Can I use a co-signer for a loan if I have bad credit?

Yes, using a co-signer with good credit can improve your chances of getting approved for a loan and may help you secure a lower interest rate. The co-signer is equally responsible for repaying the loan.

I agree to have my personal information transfered to MailChimp ( more information )
Join over 100,000 visitors who are receiving our newsletter and learn more about finance, immigration, and more!
We hate spam. Your email address will not be sold or shared with anyone else.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

Check your loan offer in minutes

Apply for a loan with 100+ partners with one application. It takes only 2 mins and doesn’t impact your credit score.

*checking your rate doesn’t impact your credit score

Get the Checklist