When you have a FICO score under 670, you’re considered a subprime borrower. If your FICO score is less than 580, your credit falls into the “very poor” range.
Every lender sets its own criteria (including credit score thresholds) for loan approval and pricing. That makes it difficult to predict precisely what APR you’ll be offered for a personal loan if you have bad credit. Interest rates on personal loans can range from roughly 4.99% to 36%. If your credit rating is poor, you might be offered rates on the higher end of that scale.
You may also come across lenders who promise “guaranteed approval” or “no credit check” for bad credit personal loans. Promises like these should be a red flag. Legitimate lenders don’t make these guarantees, according to the Federal Trade Commission, or even say you’re likely to qualify for a loan before you apply.
Getting a personal loan with bad credit can be a challenge. Still, you may find multiple lenders willing to do business with you (albeit typically at a higher interest rate). If you’re searching for personal loan options with bad credit, there are two primary loan sources you may want to consider.
You can find a combination of the best personal loans for bad credit from both types of sources in the guide above.
When you have bad credit, it might be easier to qualify for a small payday loan than a personal loan. However, payday loans come at a very high cost and should be avoided if at all possible. According to the CFPB, the average APR on a typical two-week payday loan of $100 is nearly 400%.
If you qualify for a personal loan with bad credit, you might be able to borrow money much more affordably instead of using a payday loan. Even an interest rate of 36% that’s near the upper end of the range for most personal loans costs far less than the average fees a payday lender may charge.
Additionally, many local credit unions now offer payday alternative loans (PALs). These loans can range from $200 to $1,000 with repayment terms of one to six months. The goal is to help borrowers with bad credit access more affordable short-term financing. The maximum interest rate on a PAL is 28%, including all finance charges. This rate is significantly less than what you’d pay on a traditional payday loan.
A personal loan usually refers to a fixed-rate loan that’s issued to consumers to fund a variety of purposes and paid in monthly installments. Because of how these loans are repaid, they may also be referred to as personal installment loans. Personal loans are often unsecured, meaning there’s no collateral (e.g., cash or an automobile), but they can also be collateral-secured.