A personal loan is money borrowed from a bank, credit union, or online lender that is paid back over a specified period of time. These loans can be used for a variety of purposes, such as debt consolidation, home renovations, medical expenses, and other large expenses. While this sounds like a great deal for borrowers, lending money is a large risk for lenders, especially if borrowers are unable to make their repayments.
To assess risk, lenders need some way to determine whether or not a borrower is “trustworthy,” and for this reason they will look at your credit score and credit history to see how you’ve managed debt in the past.
This is fine if you have a robust credit score, but what if you have bad credit? Or not credit at all?
Will you never be able to take out a personal loan?
For the most part, a credit score between 300 to 580 is considered bad. Even if you have fair credit, ranging up to 680, this may not be enough to qualify for a personal loan, and you would likely get hit with high interest rates if you were able to qualify.
Good to excellent credit is anything beyond 700, so that is the number to shoot for, if possible.
While it becomes more difficult to qualify for a personal loan with a bad credit score, that does not mean that there aren't any loan options available. Some lenders focus on lending to low-credit borrowers. Here are the top three:
Upgrade is a marketplace lender, connecting borrowers with multiple lenders in its network. Generally, marketplace lenders are a better option for low-credit borrowers because they often don’t have a minimum credit score requirement. Since they are not funding a loan directly, there is more flexibility with rates and terms.
If you are looking to build credit, Upgrade offers a free credit monitoring service for all consumers. This service allows you to access your VantageScore, latest credit reports, and personalized credit health insights.
The majority of Upgrade customer reviews are positive with 68 percent of reviews highlighting a fast and easy loan process, and 26 percent of reviews highlighting good experiences with customer service, including professionalism and fast response and resolution on issues.
Upgrade Customer Review: Ardelle Faralli from Sicklerville, New Jersey
"Customer service was great and very helpful. Didn't take long to get approved and receive the money in my account. My credit cards I chose were paid off quickly. I've paid off other expenses and feel good that I only have one monthly bill to pay instead of multiple bills. Thank you Upgrade so much!"
Upgrade review data is taken from a sample of 100 reviews.
Upstart is a peer-to-peer (P2P) lender focusing primarily on offering loan solutions to recent college graduates and young professionals — individuals who may not have an established credit history. Upstart claims to look at more than your credit score for qualification, including your education and employment history. This can increase your chances of approval if you have a low credit score.
Upstart reviews are a mix between positive and negative. Twenty-three percent of reviews highlight an easy loan process, but the majority of reviews highlight unfavorable experiences with getting approved, as well as bad experiences with customer service:
Upstart Customer Review: Albert Chiang from Santa Clara, California
"Fast and simple approval process. Very responsive customer service for parts that I had questions about. Very competitive rates, I'd highly recommend!"
If you are trying to get a personal loan with bad credit, remember that in most, if not all cases, you will get higher rates because you pose more of a risk to a lender since your credit score either reflects poorly against you, or your credit history is so limited that they don’t know if you are a responsible borrower.
With so many reviews outlining difficulty in getting approved, this may not be the best choice for a lender, even though the company claims to serve low-credit borrowers.
Upstart review data is taken from a sample of 30 reviews.
On the surface, especially when looking at OneMain Financial’s rates and terms, it may not seem like the company would be the best choice since its APR range is much higher than other lenders, and it offers a much smaller maximum loan amount than other lenders.
However, if you have bad credit, these rates and terms are actually more in your favor and can indicate a better chance of getting approved. With higher interest rates and smaller loan amounts, OneMain Financial mitigates its risk taken on borrowers, allowing the company to provide loans to a wider range of borrowers.
OneMain Financial reviews are a mix of positive and negative sentiments. Forty-one percent of reviews highlight good experiences with customer service, while 20 percent highlight bad experiences. For the most part, customers are pleased with the professionalism and response speed of OneMain Financial representatives, but at the same time, some customers describe experiences in which responses were delayed.
OneMain Financial Customer Review: Richard Hutchinson from Glenwood, Iowa
"One Main has worked with me to provide me with the appropriate loans to fit my personal needs. Customer service was outstanding and professional."
Perhaps more relevant to bad credit borrowers, 11 percent of customers mention that being approved for a OneMain Financial loan was easier than with other lenders, but 6 percent of customers outline that they had a difficult time getting approved.
OneMain Financial reviews data is taken from a sample of 80 reviews.
Perhaps you’ve already been doing your own personal loan lender research, but what are the things to look out for to know if they would lend to someone with bad credit? Based on what we’ve seen across lenders, here are some suggestions:
The first thing to look at when comparing personal loan lenders, especially if you have bad credit, is the company’s personal loan requirement. The average industry requirement is 660, although there are lenders that will accept scores as low as 620 or 600, and even lower depending on the lender.
Generally, if your credit score does not meet a lender’s minimum requirement, it wouldn't be in your best interest to apply, as you would most likely be rejected.
Another factor you can consider when comparing bad credit lenders is advertised APR ranges. Generally, bad credit lenders will have higher interest rates to accommodate the risk they are taking in lending to a subprime (low-credit) borrower.
For example, referring to the three lenders featured in this article, rates can range from approximately 7.00 percent APR to 35.99 percent APR. While many lenders offer a similar APR range, if you have bad credit, you can expect to get a much higher interest rate.
Typically, lenders that lend to bad credit borrowers offer a lower maximum loan amount than you might see with other lenders. Thus, if you see lenders that offer loan amounts up to $100,000, for example, it is a good rule of thumb to assume that that lender isn’t for you, since lenders are more cautious in how much money they lend to borrowers with low credit.
Similar to loan amounts, if you see lenders offering wide loan term ranges, it is likely that they aren’t meant for you. In most cases, lenders want to ensure that they will get their money back and will seek to accomplish that in the shortest amount of time possible, especially if you have a low credit score, because that could be an indicator that you were not responsible in making payments on past debt.
One easy way to know if lenders will provide you with a loan is by seeing if they offer secured loans.
A secured loan varies from your typical unsecured installment loan which depends on credit for approval. Instead, a secured loan requires some type of collateral, such as a home or car, which provides the lender with protection if you were unable to make your payments.
If you want to improve your chances of qualifying for a personal loan, or getting a lower interest rate, there are some ways that you can improve your credit score.
Your payment history on past or current debt is the largest factor that makes up your credit score. Make on-time credit card, mortgage, auto loan, and installment loan payments to keep your score on the high side or even raise it up.
Late or missed payments may incur a late fee, but can also take a big hit at your credit score. If you are unable to make on-time payments for any reason, contact your lender and find a solution, potentially saving you from any credit score stress later on.
One other factor that is largely taken into account when forming your credit score is your credit utilization rate or ratio. In the simplest of terms, your credit utilization ratio is a numerical representation of how much credit you are using in relation to how much credit is available to you. Generally, it is wise to keep your credit utilization low. If you find that you are using the majority of your credit, you can seek to increase your credit limit, which can help keep this ratio in check.
While you might think that closing some of your credit cards is a good way to improve your credit score because you’re decreasing your debt, this actually isn’t the action that you want to take. Closing a credit card can impact your credit score, and while there are options to cancel cards safely, it is in your best interest to leave credit accounts open even if you aren’t using them.
While there are other solutions that could easily do the trick, if you’d like some extra and professional help in improving your credit score there are a variety of credit repair services that you can choose from.
In most cases, credit repair companies charge a fee for removing negative marks from your credit reports. The credit repair company won’t just magically remove negative marks from these reports, but will work with you to identify inaccuracies in your reports that could be fixed.