Best loan approval odds for bad credit

How to get approved for a bad-credit loan

These steps can help bad-credit borrowers improve their personal loan application.

1. Check your credit report. Is a credit reporting error keeping your credit score low? You can review your credit report for any incorrectly reported delinquencies or accounts that aren’t yours. Remedying these kinds of issues before you apply can improve your chances of qualifying.

2. Add a co-signer or co-borrower. Adding someone with better credit may boost your chances of qualifying since the lender will consider both applicants’ credit and income to make a decision. With a joint or co-signed personal loan, whoever you add is on the hook for the loan if you fail to make payments.

3. Add collateral. You may be approved more easily or get a lower rate with a secured loan. Online lenders like OneMain and Upgrade let borrowers secure a loan with collateral — typically a vehicle — while credit unions and some banks offer loans secured with savings or CD accounts. If you can’t repay the loan, though, the lender can take the collateral.

How to choose a bad-credit loan

Here are five things to look for when comparing bad-credit loans:

1. Affordable rates: Look for a lender that caps annual percentage rates at 36%, which is the maximum rate consumer advocates consider affordable. Some online lenders offer no-credit-check loans at rates above 36%, but consider these loans a last resort after you’ve ruled out alternatives. (See our list of alternatives below.)

2. Credit reporting: Find a lender that reports your payments to at least one of the three major credit bureaus — Equifax, Experian and TransUnion. Ideally, a lender will report to all three, ensuring that on-time payments help you build credit and qualify for lower rates in the future.

3. Fast funding: If you need money quickly, an online loan may be your best option. Online lenders can often fund a loan the day after you’re approved, if not the same day.

4. Easy application: Online personal loan applications — offered by banks, credit unions and online lenders — typically take a few minutes to complete. Pre-qualifying with an online lender can be a simple way to see your rates and loan terms without affecting your credit score.

5. Perks: Some lenders have features that help you build credit, like free access to your credit score. A lender may also offer free financial education on its website.

About bad-credit loans: Rates, amounts, terms

Borrowers with bad credit can expect rates at the high end of a lender’s range. Most lenders have a minimum credit score requirement, but other information — like your monthly cash flow or occupation — also help a lender decide whether to approve you and what rate to charge.

Rates

Personal loan rates are from 6% to 36%; rates on bad-credit loans can be above 20%. A lender usually assigns you a rate based on how risky they think the loan is. If you have a high debt-to-income ratio and low credit score, a lender might assign you a higher APR.

Amounts

Personal loan amounts for consumers with low credit scores typically range from $1,000 to $50,000. Few online lenders offer loan amounts below $1,000, and not everyone qualifies for the largest loans. Borrowers with consistent income and a credit history showing on-time payments may qualify for higher loan amounts.

Terms

Personal loans typically require monthly payments over a period of two to five years. A longer term gives you lower monthly payments, but you’ll pay more interest over the lifetime of the loan. Try to find a repayment term that balances affordable monthly payments with reasonable interest costs.

Bad-credit loan example

A $3,000 loan with a 25.6% APR repaid over 12 months would require monthly payments of $286, according to NerdWallet’s personal loan calculator. You’d pay $432 in total interest on that loan.

Alternatives to bad-credit loans

Personal loans are one option if you need fast cash, but you may have access to cheaper alternatives.

Friend or family loan: Borrowing from a friend or family member takes your credit score out of the equation. You can draw up a contract and agree to repayment terms. Try to discuss how you both can keep the relationship intact once you’ve mixed in money.

Charity or nonprofit: If you need help covering everyday expenses like groceries, gas and housing — or if an expensive emergency comes up — a local charity may be able to help. These organizations may provide assistance with food or rent, or offer small, interest-free loans.

Credit-builder loan: A credit-builder loan is a safe way to build credit without borrowing money. These loans are typically offered by credit unions and community banks and require you to have an income that supports monthly payments.

Side gig: There are legitimate ways to make extra cash, no matter how quickly you need it. From babysitting and selling your gently used clothes to becoming an influencer and creating for Etsy, you may be able to find a sustainable way to bring in extra money.

Lending circles: You can form a lending circle with a group of people you trust. Everyone contributes some amount of money, which is then pooled and distributed to one circle member every month or so. In some cases, contributions are reported to the credit bureaus. It isn’t the fastest option, but it’s one way friends or family can help each other.

Buy now, pay later: A buy now, pay later loan is usually an interest-free way to split a purchase into smaller bi-weekly payments. BNPL can help you afford a new mattress or laptop. Try to sign up for one payment plan at a time to avoid overextending your finances.

Cash advance apps: A cash advance app like Earnin or Dave lets you borrow up to a few hundred dollars to help cover an income gap. Just be sure your budget can withstand a hole in your next paycheck when you have to repay the app.

How to choose between bad-credit loan companies

Each lender offers something unique, so if you qualify for a similar rate with multiple companies, compare them to decide which loan you'll get the most out of.

Here's who each bad-credit lender is best for:

Upgrade is best for borrowers who:

• Have fair or bad credit (689 or lower score). Consumers with the lowest credit scores may not qualify.

• Want to secure the loan or add a co-borrower to their application.

• Are consolidating credit cards and other unsecured debts.

• Need help building credit.

Upstart is best for borrowers who:

• Have limited credit history.

• Want fast funding and the ability to change the payment due date.

• Don't need to manage their loan from a mobile app.

Avant is best for borrowers who:

• Have bad credit (629 or lower score) and a DTI below 70%. Consumers with the lowest credit scores may not qualify.

• Need to pay for a small to midsize expense.

• Don’t want to add a co-signer or secure the loan.

• Need the funds fast.

OneMain is best for borrowers who:

• Have bad credit (629 or lower score). Consumers with the lowest credit scores may not qualify.

• Can add collateral or a co-borrower to the application, which can help lower your rate.

• Need the funds within a day or two.

• Have bad credit (629 or lower score) and a debt-to-income ratio below 75%. Consumers with the lowest credit scores may not qualify.

• Are consolidating other high-interest debts.

• Don’t want to add a co-signer or secure the loan with a vehicle.

• Want tools that help build credit.

• Have fair or bad credit (689 or lower score) and a low debt-to-income ratio.

• Want to see multiple offers via pre-qualification.

• Don’t want a secured or co-siged loan.

• Want credit-building tools, such as credit monitoring and tips to build your score.

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