Getting a personal loan with a low credit score might seem impossible, but it’s not. Many Americans struggle with bad credit, and traditional lenders often reject them outright. However, having a low credit score doesn’t mean you’re out of options. There are lenders willing to work with people in this situation—you just need to know where to look and how to improve your chances of approval.
Think of a credit score like a report card for your finances. If you had
bad grades in school, some teachers might have given you extra work to prove
you were serious about learning. The same concept applies to loans. Lenders
want proof that you can repay, and while a low credit score makes it harder,
it doesn’t make it impossible.
In this guide, I'll walk through everything you need to know about how to get a personal loan with a low credit score, where to find lenders willing to approve you, and how to increase your chances of getting a better loan offer. By the end, you’ll have the knowledge and tools to make informed financial decisions—even if your credit score isn’t perfect.
What are Credit Scores & how do they Impact on Loans?
Before applying for a personal loan, it's crucial to understand how credit
scores work and why they matter.
What Is a Credit Score & How Is It Calculated?
A credit score is a three-digit number that represents your
creditworthiness, or how likely you are to repay borrowed money. It
typically ranges from 300 to 850, with higher scores indicating
better creditworthiness.
Here’s how credit scores are calculated:
| Factor | Weight | Explanation |
|---|---|---|
| Payment History | 35% | Have you paid your past debts on time? |
| Credit Utilization | 30% | How much of your available credit are you using? |
| Credit History Length | 15% | How long have you been using credit? |
| Credit Mix | 10% | Do you have a variety of credit types (credit cards, auto loans, etc.)? |
| New Credit Inquiries | 10% | Have you applied for new credit recently? |
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Example: If you max out your credit cards and miss payments, your
score will drop significantly. But if you pay bills on time and keep
balances low, your score will rise.
Why Does a Low Credit Score Make It Hard to Get a Personal Loan?
Lenders use credit scores to assess risk. A low credit score signals a
higher risk, making lenders hesitant to approve loans or forcing them to
charge higher interest rates to compensate for the risk.
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For example, someone with a credit score of 750 might qualify
for a personal loan with a 6% interest rate, while someone with a
credit score of 550 may be offered a 25% interest rate—if
approved at all.
Key reasons a low credit score makes borrowing difficult:
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Lenders see you as a high-risk borrower.
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You might get higher interest rates, increasing your overall loan
cost.
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Some banks may deny your loan application outright.
What Credit Score Do You Need for a Personal Loan?
The minimum credit score needed for a personal loan varies by lender, but
here’s a general breakdown:
| Credit Score Range | Loan Approval Likelihood | Typical Interest Rates |
|---|---|---|
| 750 - 850 (Excellent) | Very High | 5% - 10% |
| 700 - 749 (Good) | High | 7% - 15% |
| 650 - 699 (Fair) | Moderate | 12% - 20% |
| 600 - 649 (Poor) | Low | 18% - 30% |
| 300 - 599 (Bad) | Very Low | 25% - 36%+ |
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Good news: Even if your credit score is below 600, you still
have options. Many lenders specialize in bad credit loans, though
they often require higher interest rates or collateral.
Can You Get a Personal Loan with No Credit?
If you have no credit history, you’re in a similar position as someone with
bad credit—lenders have no past data to evaluate. In this case, you may
need:
-
A co-signer (someone with good credit to back your loan).
-
A secured loan (using assets like a car or savings as
collateral).
- A lender that offers credit-builder loans to establish a credit history.
Where to Get a Personal Loan with a Low Credit Score?
Finding the right lender when you have a low credit score can be tricky.
Traditional banks may reject your application, but other lenders specialize
in working with borrowers with bad credit. Let’s explore your best
options.
Best Lenders for Personal Loans with Bad Credit
Not all lenders have the same requirements, and some are more flexible when
dealing with low credit scores. Here’s a breakdown of where you can
apply:
| Lender Type | Approval Chances | Typical Interest Rates | Key Features |
|---|---|---|---|
| Online Lenders | High | 15% - 35% | Quick approval, soft credit checks, pre-qualification available |
| Credit Unions | Moderate to High | 10% - 25% | Lower rates, must be a member |
| Peer-to-Peer Lending | Moderate | 12% - 30% | Funded by individuals, flexible terms |
| Banks | Low | 7% - 25% | Strict requirements, hard credit check |
| Payday Lenders | Very High | 100%+ | Extremely high fees, short repayment period (not recommended) |
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Example: If you apply for a $5,000 personal loan from a credit union
with a 20% interest rate, your monthly payment might be $132 over 5
years. However, the same loan from a payday lender could cost you thousands
in fees.
Secured vs. Unsecured Personal Loans – Which Is Better for Bad Credit?
Personal loans come in two types: secured and
unsecured.
Secured Personal Loans
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Requires collateral (car, savings, property).
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Easier to qualify for, even with bad credit.
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Lower interest rates because of reduced lender risk.
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Risk: If you don’t repay, the lender can take your asset.
Unsecured Personal Loans
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No collateral required.
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Higher interest rates for low-credit borrowers.
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Harder to qualify for without a strong income.
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Example: Suppose Lisa has a 580 credit score. She applies for a
secured loan using her car as collateral and gets a
12% interest rate. If she applied for an unsecured loan, she might
have been offered 28% interest instead.
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Tip: If you own a car or have a savings account, using it as
collateral can increase your approval chances and lower your rate.
Personal Loans from Alternative Lenders
If traditional lenders deny your application, alternative lending options
exist. But be cautious—some come with
high risks and hidden fees.
1. Payday Loans (Not Recommended)
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Pros: Quick approval, no credit check.
-
Cons: Extremely high fees (APR often 400%+), short
repayment window (2-4 weeks).
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Example: Borrowing $500 could cost $650 or more in just a
few weeks.
2. Title Loans
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Pros: Fast cash using your car title as collateral.
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Cons: Risk of losing your car if you default.
3. Borrowing from Family & Friends
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Pros: No credit check, flexible terms.
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Cons: Risk of damaging relationships if you can’t repay.
4. Peer-to-Peer Lending (P2P)
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Pros: Funded by individuals, lower rates than payday loans.
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Cons: Not guaranteed, depends on investor interest.
💡
Warning: Avoid lenders who
guarantee approval with no checks—these are often scams.
How to Choose the Right Lender for a Personal Loan with a Low Credit Score?
Here are key factors to consider before applying:
✅
Interest Rates: Compare offers to avoid excessive costs.
✅
Loan Terms: Shorter terms mean higher payments but less interest over
time.
✅
Fees: Watch for hidden fees like
origination fees, late fees, and prepayment penalties.
✅
Approval Time: Some lenders provide funding within 24 hours,
while others take weeks.
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Tip: Use a personal loan comparison site like LendingTree or
NerdWallet to check rates from multiple lenders before
applying.
Case Study: How John Secured a Personal Loan with Bad Credit?
John, a 32-year-old warehouse worker, had a credit score of 580 due
to missed payments on old credit cards. He needed a $3,000 loan to
cover emergency medical expenses.
-
First Attempt: He applied at his bank and was denied due to low
credit.
-
Second Attempt: He tried an
online lender specializing in bad credit loans and got approved,
but at a 28% interest rate—too high for his budget.
-
Final Choice: He joined a credit union, applied for a
secured personal loan using his savings account as collateral, and
got a 15% interest rate, making the loan affordable.
🔹
Lesson: Shopping around and considering different lender types can
save hundreds or even thousands in interest over time.
How to Improve Your Chances of Getting Approved for a Personal Loan with a Low Credit Score?
Applying for a personal loan with a low credit score doesn’t mean you have
to accept the first offer you get. There are
several ways to increase your chances of approval and even secure
better loan terms. By taking a few smart steps before applying, you
can improve your odds and lower your interest rate.
1. Check & Improve Your Credit Score Before Applying
Before applying for a personal loan, review your credit score and
fix any errors that might be dragging it down.
How to Check Your Credit Score for Free
In the U.S., you can check your credit report for free once a year at
AnnualCreditReport.com. You can also monitor your score through services like:
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Credit Karma
-
Experian Free Credit Score
-
Bank or Credit Card Apps (Chase, Capital One, Discover, etc.)
Fix Any Errors on Your Credit Report
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Example: If your credit report incorrectly shows a late payment,
dispute it with the credit bureau. A simple correction could
increase your score by 20+ points instantly.
2. Pay Down Existing Debt to Lower Your Debt-to-Income Ratio (DTI)
Lenders look at your Debt-to-Income Ratio (DTI)—the percentage of
your income used for monthly debt payments. A high DTI can lead to
loan rejection.
How to Calculate Your DTI
Use this formula:
(Total Monthly Debt Payments ÷ Gross Monthly Income) × 100 = DTI%
| Example | Amount |
|---|---|
| Rent/Mortgage | $1,000 |
| Car Payment | $300 |
| Credit Card Payments | $200 |
| Total Debt Payments | $1,500 |
| Monthly Income | $3,500 |
| DTI Ratio | ($1,500 ÷ $3,500) × 100 = 42% |
✅
Lenders prefer a DTI below 36%. If yours is too high, paying down
existing debt can increase your approval chances.
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Example: If you reduce your credit card balances from
$2,000 to $1,000, your credit utilization drops, improving your
credit score and boosting your chances of loan approval.
3. Apply for a Smaller Loan Amount
If your credit score is low, applying for a large loan might lead to
denial or very high interest rates. Instead, consider borrowing
a smaller amount that’s easier to repay.
💡
Tip: Instead of applying for a $10,000 loan, try requesting
$3,000 - $5,000, which has a
higher approval rate for bad credit borrowers.
4. Get a Co-Signer or Co-Borrower
A co-signer is someone with good credit who agrees to be responsible
for the loan if you can’t repay it. Adding a co-signer can:
-
Increase your approval chances.
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Get you a lower interest rate.
-
Improve loan terms (longer repayment period, lower fees).
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Example: Sarah (credit score 580) applies for a personal loan and
gets a 30% interest rate. If her father (credit score 750) co-signs,
the lender reduces the rate to 12%, saving her
thousands in interest.
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Warning: If you miss payments, the co-signer is responsible for
repaying the loan, which can hurt their credit score.
5. Offer Collateral for a Secured Loan
If unsecured loans are out of reach, consider a
secured personal loan by offering an asset as collateral.
Types of Collateral Lenders Accept:
-
🚗
Car Title – Some lenders allow you to borrow against your vehicle’s
value.
-
💰
Savings Account or CD – Banks may offer a loan using your savings
as security.
-
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Home Equity – Homeowners can borrow against their home’s value.
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Tip: A secured loan often has lower interest rates than
unsecured loans. However, failure to repay could mean
losing your assets.
6. Apply with Alternative Lenders Instead of Banks
If traditional banks deny your application,
consider alternative lenders who specialize in bad credit
loans.
Best Alternative Lenders for Bad Credit Personal Loans
| Lender Type | Pros | Cons |
|---|---|---|
| Online Lenders | Fast approval, soft credit checks | Higher interest rates |
| Credit Unions | Lower rates, more flexible requirements | Must be a member |
| Peer-to-Peer Lending | Can negotiate terms with investors | Approval not guaranteed |
| Installment Loan Providers | Fixed payments, predictable terms | Often higher fees |
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Example: Maria (credit score 590) was denied a loan from Wells Fargo
but got approved by LendingClub, an online lender, at a
19% interest rate—better than a payday loan.
7. Avoid Applying for Too Many Loans at Once
Every time you apply for a loan, the lender performs a
hard credit inquiry, which temporarily
lowers your credit score by a few points.
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Solution: Get pre-qualified before applying. Many lenders
offer soft credit checks, letting you see potential rates
without affecting your credit score.
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Tip: Use online loan marketplaces like NerdWallet or
LendingTree to compare loan offers
without multiple hard inquiries.
8. Improve Your Credit Score Over Time
If you don’t need the loan immediately,
take a few months to improve your credit score before applying.
Quickest Ways to Boost Your Credit Score
✅
Pay Bills on Time – Even one late payment can drop your score by
50+ points.
✅
Reduce Credit Utilization – Keep balances below
30% of your credit limit.
✅
Dispute Errors on Your Credit Report – Incorrect late payments? Get
them removed.
✅
Increase Credit Limits – Ask your credit card issuer for a higher
limit to lower your credit utilization ratio.
✅
Become an Authorized User – Get added to a relative’s credit card to
boost your score.
🔹
Example: Jake (credit score 580) improved his score to
620 in three months by paying off a credit card and disputing a
mistake on his credit report.
Case Study: How a Small Credit Fix Saved Emily $2,000 in Interest
Emily needed a $5,000 personal loan but had a
credit score of 600. Lenders offered her a 27% interest rate,
which meant she’d pay $2,018 in interest over three years.
Instead of accepting the offer immediately, she:
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Paid off $800 in credit card debt, reducing her credit
utilization.
✅
Removed a $50 collections account that was wrongly reported.
✅
Waited two months for her score to increase to 650.
With her new credit score of 650, she reapplied and got a
15% interest rate, saving over $2,000 in interest.
Final Thoughts
Getting a personal loan with a low credit score is challenging, but not
impossible. By
improving your credit, exploring alternative lenders, and using smart
strategies, you can increase your chances of approval and
secure better loan terms.
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Key Takeaways:
✔
Check your credit score & fix errors before applying.
✔
Pay down debt to improve your DTI ratio.
✔
Consider a secured loan or a co-signer for better approval
chances.
✔
Use alternative lenders if banks reject your application.
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Avoid multiple loan applications to protect your credit score.
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Now It’s Your Turn: Have you applied for a personal loan with bad
credit? What was your experience? Let us know in the comments!