Apply for a Personal Loan with Bad Credit

Writer and editor - Joseph Smith | Updated on 2023-03-05

Credit scores can range from 300 to 850. There are four generally agreed-upon ratings, including bad, fair, good, and excellent. People with bad credit typically have a score of 629 or lower.

A low credit score can be problematic for several reasons, foremost being the inability to receive a personal loan. Lenders often see people with poor credit scores as risky investments and are less likely to approve one than they would an individual with a higher score. However, there are plenty of online lenders that cater directly to people in this position.

Where Do I Apply for a Personal Loan with Bad Credit?

These companies will take into account someone’s credit history and scores when they apply for a personal loan with bad credit. They often have lower standards for loan approval than other institutions and may consider factors. As a way to mitigate their risk, these lenders will charge higher interest rates, typically more than 20%. Some lenders for people with poor credit include, but are not limited to:

How to Apply for a Personal Loan with Bad Credit

The application for a personal loan with bad credit is the same as any other loan. The first step is to gather all relevant personal information, starting with a credit score. TransUnion, Experian, and Equifax are the three major credit bureaus. People can obtain a free copy of their credit report from each of these institutions once per year.

If it is below 629, ideally, someone would take the time to improve their credit score before applying. That may mean disputing errors in the report or limiting the number of hard inquiries. Of course, everyone does not have the luxury of time and may have to apply with the present score.

The next step is to talk with the bank, credit union, or other lending institution. Based on the credit score alone, many places can tell someone whether or not they have a chance at approval. If they do receive the green light, the borrowers have to prove to the lenders that they can pay back the loan on time.

A person can improve their financial standing if they get a cosigner. A cosigner is someone who guarantees that the lender will receive the entire loan amount in repayment. Often, cosigners have good or excellent credit scores as a way of bolstering the prospects of the loan recipient.

People should not settle for the first personal loan approval they receive. While it’s tempting to move forward, people are better off if they shop around for other lenders and loans. When there are multiple competing offers, individuals are more likely to get a loan amount and monthly payment totals that work on their terms.

Pros and Cons – Personal Loans

Pro #1: The Versatility

Personal loans are not one-size-fits-all. Customers can use the money for almost any purpose, such as paying off credit cards, medical bills, auto repairs, and even a vacation. Conversely, auto loans and mortgages have minimal leeway on terms.

Pro #2: The Accessibility

For this article, the accessibility is the most significant plus. People do not need to have a perfect credit score to walk away with the money they need. Additionally, the approval process only takes a few days compared to mortgage loans, which can last at least a month.

Con #1: The Interest Rates

Of course, the caveat of accessibility is that the interest rate will be exceedingly high. Most companies will charge people with poor credit somewhere between 20% and 40%. The crippling interest rates can leave borrowers stuck in an endless cycle of debt.

Con #2: The Fees

Beware of the fees. Lenders may lure unsuspecting customers in with attractive offers and burden them with additional expenses in the details. That can include origination fees, which cover the processing of the loan, and penalties for paying off the loan early.

What You Can Do If a Lender Denies an Application

If someone gets denied, the best thing to do is to improve the credit score. Even small steps can end up making an enormous difference. Two previously mentioned tips were correcting errors on the credit history and limiting the number of hard inquiries.

Borrowers will also want to pay their bills on time. This consistent payment will demonstrate to future lenders that they are trustworthy when it comes to borrowing. If someone has trouble remembering to pay their bills, one solution is to automate the process. That way, the bill collector will automatically debit the borrower’s bank account when the payment is due.

Another beneficial movement is to improve the personal credit utilization ratio. This figure represents the sum of credit card balances at a given moment over the total credit limit. For instance, if someone spends $2,500 in a month and their credit limit is $10,000, their credit utilization ratio is 25%.

As a rule of thumb, lenders like to see people with ratios under 30%. This percentage signals to them that the person is financially responsible and understands how to operate a balanced budget. Two ways to improve a credit utilization ratio are to pay off existing debts and become an authorized user on another person’s account, as long as they are financially stable.


People who want to apply for a loan with bad credit are already behind the eight ball. Poor credit scores make it challenging to get a loan, whether they use a bank, credit union, or online vendor. Even if someone with bad credit does get application approval, they face unfavorable terms, such as higher interest rates and fees.

The decision to pursue a personal loan depends on the borrower and their current financial needs. If possible, people with poor credit histories should take steps to improve their credit score. Some ways to boost it include optimizing the credit utilization ratio, eliminating existing debt, and paying bills on time.

Joseph Smith

Joseph Smith
Writer and editor

Joseph Smith is an experienced freelance writer with over 11 years of experience. His area of expertise includes finance, loans and lending. His work has been featured on various large websites including this one.
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