The Ultimate Guide To Personal Loans For Bad Credit

Camino Financial30 Jan 2024
The Ultimate Guide To Personal Loans For Bad Credit
Personal loans for bad credit have proven indispensable for many seeking immediate financial relief. For individuals faced with less-than-perfect credit scores, this option provides a lifeline, offering a chance to secure funds when traditional avenues seem closed. These loans ensure everyone has access to financial resources, regardless of their past credit decisions. Dive in as we unpack the nuances, benefits, and considerations of this essential financial instrument. Whether you're a first-time borrower or a seasoned financier, this guide is exactly what you need.

Top 10 Personal Loans For Bad Credit

Camino Financial

Camino Financial's logo

Best for business purposes

Instead of using a personal loan for your business, we recommend you apply for a Camino Financial loan. We offer business loans with easy-to-meet requirements.
  • Minimum credit score: 670
  • Amounts: $10,000 to $50,000
  • Interest rates: 32% to 45%
  • Terms: 24 months
  • Minimum credit requirements:
    • Have an SSN
    • Businesses registered and in operation for at least 12 months
    • Businesses earning $2,500 in average monthly revenue
    • Located in the US, except for New Jersey, Hawaii, and Puerto Rico
Apply For A Business Loan!

Upstart

upstart logo

Best for people with no credit history

  • Minimum credit score: 300 (also applicants with no credit history)
  • Amounts: $1,000 to $50,000
  • Interest rates: 4.60% to 35.99%
  • Terms: 36 and 60 months
  • Fees:
    • up to 12.00% origination fee
    • 5% or $15 late fee
    • $15 returned check fee
  • Requirements:
    • Legal citizen or a permanent resident
    • Have an SSN
    • Be 18 years old
    • Minimum annual income of $12,000
    • Have a personal bank account

Avant

avant logo

Best for quick funding

  • Minimum credit score: 580
  • Amounts: $2,000 to $35,000
  • Interest rates: 9.95% to 35.99%
  • Terms: 12 to 60 months
  • Fees:
    • up to 4.75% origination fee
    • $25 late fee
    • $15 returned payment fee
  • Requirements:
    • Have an SSN
    • Minimum monthly income of $1,200
    • Have a personal bank account in good standing

OneMain Financial

OneMain Financial logo

Best for secured loans

  • Minimum credit score: none
  • Amounts: $1,500 to $20,000
  • Interest rates: 18% to 35.99%
  • Terms: 24 to 60 months
  • Fees:
    • up to 10% or up to $500 origination fee
    • up to $30 or up to 15% late payment fee
    • up to $50 non-sufficient funds fee
  • Requirements:
    • Have an SSN or ITIN
    • Be 18 years old

Upgrade

upgrade logo

Best for long repayment periods

  • Minimum credit score: 560-600
  • Amounts: $1,000 to $50,000
  • Interest rates: 8.49% to 35.99%
  • Terms: 36 to 84 months
  • Fees:
    • up to 9.99% origination fee
    • $10 late fee
    • $10 failed payment fee
  • Requirements:
    • Maximum 75% debt-to-income (DTI) ratio
    • Credit history of at least 2 years

LendingPoint

LendingPoint logo

Best for flexibility

  • Minimum credit score: 600-620
  • Amounts: $2,000 to $36,500
  • Interest rates: 7.99% to 35.99%
  • Terms: 24 to 60 months
  • Fees:
    • up to 10% origination fee
    • 5% or $30 late fee
  • Requirements:
    • Legal citizen
    • Have an SSN
    • Have a personal bank account
    • Credit history of at least 6 months
    • Minimum annual income of $35,000
    • Maximum 50% DTI ratio

Universal Credit

Universal Credit logo

Best for lower scores

  • Minimum credit score: 560
  • Amounts: $1,000 to $50,000
  • Interest rates: 11.69% to 35.99%
  • Terms: 36 to 60 months
  • Fees:
    • up to 9.99% origination fee
    • up to $10 late payment fee
    • $10 non-sufficient funds fee
  • Requirements:
    • Maximum 75% debt-to-income ratio
    • Credit history of at least 2 years

Happy Money

happy money logo

Best for few fees

  • Minimum credit score: 640
  • Amounts: $5,000 to $40,000
  • Interest rates: 11.25% to 29.99%
  • Terms: 24 to 60 years
  • Fees:
    • up to 5% origination fee
  • Requirements:
    • Legal citizen in the US, except Massachusetts and Nevada
    • Have an SSN
    • Be 18 years old
    • A valid checking account
    • Maximum 55% DTI ratio
    • Credit history of at least 3 years

Prosper

prosper logo

Best for low amounts

  • Minimum credit score: 600
  • Amounts: $2,000 to $50,000
  • Interest rates: 6.99% to 35.99%
  • Terms: 24 to 84 months
  • Fees:
    • up to 5% origination fee
    • 5% or $15 late payment fee
    • $15 insufficient funds
    • $5 pay by mail fee
  • Requirements:
    • Legal citizen or a permanent resident
    • Have an SSN
    • Be 18 years old
    • Have a personal bank account
    • Maximum 50% DTI ratio

Rocket Loans

Rocket Loans logo

Best for low-interest

  • Minimum credit score: 640
  • Amounts: $2,000 to $45,000
  • Interest rates: 9.16% to 29.99%
  • Terms: 36 to 60 months
  • Fees:
    • up to 6% origination fee
    • $15 late payment fee
    • $15 unsuccessful payment fee
  • Requirements:
    • Legal citizen or a permanent resident
    • Be 18 years old
    • No bankruptcies in the last 2 years
    • Credit history of at least 2 years
    • Maximum 70% DTI ratio
    • Minimum annual income of $24,000
Personal Line of Credit vs. Personal Loan

How To Get A Loan For Bad Credit

How To Compare And Choose A Bad Credit Personal Loan

Terms

Look for how long the term is. This will dictate how long you'll be paying the loan off. Remember, longer terms might mean smaller monthly payments, but it can also mean more interest in the long run. Some lenders offer flexibility, like the ability to postpone a payment without a penalty or change your payment due date to align better with when you get paid. Answer the following question:

Are there a variety of repayment terms available?

#CaminoTip Calculate your monthly payments. Use one of the many handy online calculators to get a clear picture of what you need to set aside each month. This ensures you don’t bite off more than you can chew and helps you maintain a smooth financial sail.

Requirements

Some lenders might require a co-signer, while others may want a certain income level. Jot down a list of lenders and their requirements, and see which ones align with your current situation. Answer the following questions:
  • What are the lender's requirements, such as a minimum credit score or income?
  • Do they perform a hard or soft or a hard credit check?
#CaminoTip If you don’t qualify for a personal loan, you can boost your credit score. Just pay your bills on time, reduce the balance on credit cards to less than 30% of the allowable credit limit, and stop opening new credit accounts.

Compare APRs, Not Interest Rates

Interest rates can be deceiving. It's the APR (Annual Percentage Rate) that gives the true cost of the loan, combining both interests and fees.

Fees

Make sure to get a full rundown of any potential fees before committing. Lenders usually have the following fees:
  • Origination fees. A one-time fee when you receive the loan.
  • Late payment fees. Pretty self-explanatory. Don't be late!
  • Prepayment fees. If you decide to pay off the loan early, some lenders might charge you.

Lender's Reputation

Just like checking reviews before purchasing a product, do the same for lenders. Previous borrowers' experiences can give you valuable insights. Answer the following questions:
  • Can you access borrower reviews (both negative and positive)?
  • Are they known for good customer service?
  • Do previous applicants mention any red flags?
  • Is the lender registered in the state and transparent about their operation?

Speed

Some lenders can approve and disburse funds in as little as one business day. So, if speed's your game, look out for these options. Answer the following questions:
  • How long does a lender's online application process take from beginning to end?
  • How soon are funds available after approval?

Other Features

Answer the following questions:
    • Does the lender offer customer support that can answer all your questions?
    • Can you access your loan payment information online at your convenience?
    • Are there any restrictions on how you can use the funds? For example, do they allow you to use the products as debt consolidation loans?
  • What type of cyber security does the lender use to protect sensitive data?
  • Does the lender offer different payment options? Examples: pay by check or credit card, make payments through the lender's website, or an automatic payment.

Most Common Requirements

  • Credit score. Some might accept a score of 600, while others might be flexible enough to consider 500 or even lower.
  • Proof of income. Lenders want evidence that you have a regular income—be it from a job, disability benefits, or other consistent streams—to ensure you can make the repayments.
  • Employment history. Lenders like stability and a steady employment history can tick that box.
  • Debt-to-income ratio. It's like comparing how much pasta you eat versus how much you burn. If you're consuming more than you're using, it's a problem. Lenders want to ensure your debts aren't swallowing up your income.
  • Valid ID and legal residency. Basic but essential. You'll typically need to show you're a legal resident or citizen of the country. This also includes having an SSN (social security number).
  • A bank account. Usually, lenders deposit the loan amount directly into a bank account, so having one is pretty much a no-brainer.

Required Documents

In most instances, you'll need:
  1. SSN
  2. copy of bank statements
  3. proof of identity (driver's license, passport)
  4. copy of your latest pay stub
  5. W-2 or business financial statements
  6. tax returns, and 1099s
  7. copy of utility payment to verify your address
  8. business or employer's contact information

Required Information

Expect to provide personal information such as:
  1. legal name
  2. Address
  3. mobile phone number
  4. email address
  5. date of birth
  6. citizenship status
  7. income
  8. the total amount of debts and income

How To Apply For A Bad Credit Loan: Step-By-Step

Know Your Credit Score

You can get a free credit report from each of the 3 credit bureaus every year or from Credit Karma. By knowing your score, you'll get a general idea of the interest rate the lender may charge.

Decide If You Want To Apply For Secured Or Unsecured Loans

Not all personal loans are the same, especially when it comes to poor credit. Because you're putting your assets at risk, the personal loan interest rates for secured loans tend to be lower. The problem is that, if you default to pay, you might lose that asset

Make Sure That You Meet The Requirements

Before applying for these loans for bad credit, you need to perfectly understand the lender's requirements. Otherwise, you probably won't qualify. Some personal loan companies for bad credit may require at least 3 years of credit history, a minimum credit score, or a specific debt-to-income ratio, for example.

Before You Apply, Know How Much Money You Can Borrow

This will help you determine which terms and costs are affordable for your budget. You can use a personal loan calculator online to make this process easier.

Share Financial Information

Depending on the lender, they may either:
  1. require you to submit your bank statements
  2. use a secure system to link to your bank account(s) to verify financial information.
Of course, you would only provide this type of information to a reputable and trusted lender. If you need to submit documents electronically, make sure the lender uses an online system such as Plaid, Finicity, or MX.
#DidYouKnow Camino Financial uses Plaid, a very secure application used by thousands of banks and financial institutions.

Carefully Read The Contract

If the lender approves the loan, read the online contract carefully to verify all information. What's important to remember is that you aren't obligated to accept the offer.
#CaminoTip Only accept an offer when you’re in a financial position to repay the loan and if you’re comfortable with the terms.

Receive Your Cash

Once you agree to the loan terms, lenders will transfer the personal loans to your bank account.
#CaminoTip After receiving the funds, make on-time payments to build a positive credit history and avoid extra fees.
Apply For A Business Loan!

5 Tips To Qualify For A Bad Credit Loan

  • Consider A Co-Signer. Think of them as your marathon buddy. They can vouch for you and back up the loan, potentially improving your chances of approval.
  • Go For Secured Loans. These require collateral, like your car or home. Just be cautious—defaulting means you could lose what you've put up.
  • Aim For Smaller Loan Amounts. Instead of shooting for the stars, start small. It might be easier to get approved for a more modest amount, and it can also help improve your credit over time.
  • Shop Around, But Swiftly. Each time a lender checks your credit, it can create a 'hard' inquiry, which might ding your score. When shopping, do it within a short timeframe to minimize the impact.
  • Be Wary Of Predatory Lenders. Desperation can sometimes lead to hasty decisions. Always research to ensure you're not walking into a trap. Trustworthy lenders won't ask for money upfront and will have clear terms.

Everything You Need To Know About Bad Credit Loans

What Are Bad Credit Loans?

Bad credit loans are personal loans designed specifically for individuals with poor credit scores. These loans offer an opportunity for those who might not qualify for traditional lending due to past financial mistakes or limited credit history.
Essentially, they provide a borrowing option for those facing credit challenges.
However, because lower credit scores mean the person is a riskier lendee, these loans tend to be more expensive.
#DidYouKnow A person usually has a low credit score because, in the past, they have failed to pay their bills on time or not at all.

How Do Bad Credit Personal Loans Work?

Bad credit personal loans are similar to standard loans, but in reality, they are fundamentally different due to the risk profile of the borrower. Lenders view borrowers with bad credit as high risk. As a result, lenders implement measures to mitigate this risk:
  • Higher Interest Rates. Due to the perceived risk, the interest rates on bad credit personal loans are typically higher. This is to compensate lenders for taking a higher risk.
  • Loan Term. These loans often have shorter repayment terms This is another measure by lenders to minimize risk. A shorter loan term means you'll have to repay the borrowed amount (plus interest) more quickly.
  • Loan Amount. Typically, the amount you can borrow might be smaller. Lenders are cautious about giving large sums to high-risk borrowers.

Average Bad Credit Loan Rates And Fees

Type Average Rate Fee
Interest Rate (APR) 15% to 56%+
Origination Fee 1% to 8% of the loan
Late Payment Fee $15 to $30 or 5% of payment
Prepayment Fee 2% to 5% of the loan
Returned Payment Fee $15 to $25

Pros And Cons Of Bad Credit Loans

Pros:
  • Accessibility. Even with a rocky credit history, you can secure funds.
  • Versatility. From medical bills to car repairs, use the loan for various purposes.
  • Credit Boost. By timely repaying the loan, you could improve your credit score.
Cons:
  • Higher Rates. The risk associated means lenders often charge higher interest.
  • Fees. As seen above, there could be multiple fees sneaking around.
  • Potential for Debt. If not careful, one could sink further into debt.

Where To Find Personal Loans For Bad Credit

Banks

They are traditional financial institutions that offer a range of lending products, often with stricter qualification criteria for bad credit. While it may be a bit tougher to qualify, some banks have specialized programs tailored for individuals with financial hiccups in their past.

Credit Unions

Member-owned financial cooperatives are only open to members. Credit unions often provide loans with more favorable terms and lower interest rates, especially for members with bad credit.

Online Lenders

Digital platforms specializing in various loan products. Their platforms typically allow for fast applications and decisions. It's essential to choose reputable online lenders to avoid potential scams.

Alternative Lenders

Non-traditional lenders may have flexible lending criteria, catering especially to niche markets or those with poor credit. They might have more "alternative" requirements that allow bad-credit applicants to receive approval.

Types Of Personal Loans For Bad Credit

Secured Loans

Secured loans require you to pledge an asset, like your car or home, as collateral. This offers a security net to the lender. If you fail to make repayments, they have the right to take the pledged asset. The silver lining? The presence of collateral often results in lower interest rates compared to unsecured loans.

Unsecured Loans

In contrast to secured loans, unsecured ones don't demand any collateral. However, due to the increased risk to lenders, they typically come with higher interest rates. Approval and the rate you receive are usually based on your creditworthiness.

Joint Loans

Think of this as a collaborative effort. Two individuals jointly apply for the loan. Both parties are equally responsible for repayment. If one has bad credit, the other's good credit can balance out the application, potentially leading to better terms.

Co-signed Loans

Here, a borrower with bad credit partners with a co-signer boasting a better credit profile. The co-signer essentially "guarantees" the loan, meaning if the borrower defaults, the co-signer is legally obligated to cover the debt.

Payday Loans

Payday loans are short-term, high-cost loans that are typically due by your next payday. They're often for small amounts, and the lending criteria are relatively lax. However, they come with notably high interest rates. The idea behind such a loan is to tide you over if you're short on cash between paychecks. If not repaid on time, though, the costs can escalate quickly due to the high APRs and associated fees.

Cash Advances

Cash advances are usually offered as a feature of credit cards. Essentially, it allows you to use your credit card to get a short-term cash loan at a bank or ATM. Unlike a cash withdrawal from a debit card, the money borrowed isn't linked to your bank balance. You must pay it back with interest, and interest begins accruing immediately, with no grace period. Cash advances also usually come with fees and higher interest rates than regular credit card purchases.

Bank Agreements

Sometimes, you might have a pre-arranged agreement with your bank where they'll cover transactions even if your account lacks sufficient funds. Known as an overdraft, it's a short-term facility with typically high interest.

Home Equity Loans

If you have a house, and you've paid off a significant portion of your mortgage, you've built "equity." A home equity loan allows you to borrow against this equity. The catch? Your house acts as collateral, meaning if you default, the bank could potentially take your home.

HELOCs

HELOC, or Home Equity Line of Credit, is somewhat akin to a credit card but tied to your home's equity. Instead of a lump sum, you get access to a revolving credit line, allowing you to borrow as needed. However, like home equity loans, your home is collateral.

Student Loans

Tailored for educational expenses, student loans often offer competitive rates and flexible repayment options. For those with bad credit, having a co-signer or opting for federal student loans can be beneficial.

Title Loans

For title loans, your vehicle's title is the collateral. You retain the use of the vehicle, but if you can't pay back the loan, the lender has the right to take and sell the vehicle to recover their money.

Pawn Shop Loans

You give a pawn shop an item of value, and they lend you money based on its worth. If you repay the loan within the agreed period, you get your item back. If not, the pawn shop can sell your item to recoup their funds.

Understanding Your Credit Score

Your credit score is a three-digit number that lenders use to assess your creditworthiness.
#DidYouKnow On average, 11.1% of American consumers have poor credit scores, and 22% of the population doesn’t even have an existing FICO score

How Are Credit Scores Calculated?

Credit bureaus calculate your score based on multiple factors from your financial history. Here's a breakdown:
  • Payment History (35%): This evaluates whether you've paid your past credit accounts on time.
  • Amounts Owed (30%): This considers the total amount of credit you've used compared to your credit limits.
  • Length of Credit History (15%): The longer you've had credit, the better it typically is for your score.
  • New Credit (10%): This includes the number of recently opened accounts and the number of recent hard inquiries.
  • Credit Mix (10%): This looks at the types of credit accounts you have, such as credit cards, mortgages, and installment loans.

What Interest Rate Can I Expect If I Have Bad Credit?

Lenders charge interest rates based on your creditworthiness (your ability to repay a loan). So by reviewing your credit history, a lender can determine whether you're in a position to pay back additional debt. And because lenders see people with bad credit as a greater financial risk, they charge higher interest rates to offset that risk.
#DidYouKnow A good credit score is necessary to obtain affordable financing.
Lenders charge the highest rates to borrowers with poor credit because they present more risk if they default on repayment. This enables personal loan companies for bad credit to recoup potential losses when the loan balance is the highest at the beginning of the loan. This table shows the relation between credit scores and interest rates for personal loans:
Credit Score Range Average Interest Rate
720-850 10% - 15%
690-719 15% - 18%
630-689 18% - 23%
300-629 23% - 36%+

Alternatives To Personal Loans For Bad Credit

Credit Builder Loans

A credit builder loan is a unique product designed primarily to improve your credit score. Borrowers pay the loan before receiving the money. Once the loan term ends, they receive the total paid amount. Throughout the term, the lender reports your on-time payments to credit bureaus, positively impacting your credit score.

Credit Cards

Secured credit cards are an excellent choice for those with poor credit. By providing a deposit as collateral, you can get a card with a credit limit, typically matching the deposit amount. Using the card responsibly and maintaining timely payments can help elevate your credit score.

Money From Friends And Family

Borrowing money from family might be a feasible option. The advantage is that terms are usually flexible, and interest rates may be lower or even non-existent. However, it's essential to keep communications clear and perhaps draft a written agreement to prevent misunderstandings.

Payment Plan For Bills

If you're struggling with hefty bills, many service providers or creditors allow you to set up a payment plan. Spreading the cost over months can make it more manageable and might prevent late fees or service disruptions.

Local Nonprofits Or Charities

Local nonprofits or charities sometimes offer short-term loans or emergency grants for those in dire need. This assistance can be particularly helpful for covering essentials like housing, utilities, or food.

Medical Bill Assistance

Many hospitals and medical providers offer financial assistance programs, payment plans, or sliding-scale fees based on your income. It's always worth asking about these options if faced with substantial medical bills.

Business Loans

For entrepreneurs or business owners, traditional personal loans might not be the best fit. Instead, consider business loans, which are specifically for business needs. These loans often evaluate the company's financial health and potential rather than just the owner's personal credit score.

The Business Capital You Need With Easy-To-Meet Requirements

Did you know that if your intent is to invest in a business, personal loans might not be your best bet? For aspiring and current business owners, obtaining the right financing can be the linchpin to success. Business loans can meet the unique needs of a company, whether it's for purchasing inventory, expanding operations, or bridging cash flow gaps. Securing proper funding can mean the difference between growth and stagnation. If you're seeking a reliable lender for your business needs, Camino Financial stands out as a trusted partner. We specialize in small business loans, ensuring that entrepreneurs have the financial support they need to thrive. Ready to take the next step? Consider exploring what Camino Financial has to offer. Apply For A Business Loan!

Frequently Asked Questions

How does a bad credit score affect your ability to get a loan?

Lenders favor higher scores because it's one indicator that the borrower can repay a loan. Credit scores reflect your payment history, credit usage, the length of your credit history, the types of credit accounts you have, and recent credit activity.

How much money can you borrow with bad credit?

Lenders consider a range of factors to determine the amount of money they can safely loan to borrowers. Therefore, the amounts you can borrow vary per lender, but with most lenders, you can expect to receive the lowest amount if you have bad credit.

What are predatory lenders?

As the name implies, these money lenders prey on unsuspecting borrowers desperate to obtain cash, especially seniors and individuals who don't understand much about finances. Their terms are usually not favorable at all. Predatory lenders may use aggressive sales tactics or seek out vulnerable consumers who can't afford a loan or anyone who struggles financially. Then, these lenders convince the person to get a loan that they can't really afford.

What are loan scams?

Loan scams are deceptive schemes where fraudsters pose as legitimate lenders to exploit individuals by extracting upfront fees, obtaining personal information for identity theft, or both, often without providing the promised loans. These scams prey on individuals, especially those with poor credit histories, by offering too-good-to-be-true loan terms or approvals, only to defraud or financially harm the victims.

How can I spot bad credit loan scams?

Be cautious of lenders who:
  • Don't require a credit check.
  • Ask for upfront fees before processing your application.
  • Have no physical address or aren't registered in your state.
  • Pressure you to act immediately.
  • Have an unsecured or unprofessional website.

What should I do if I've been scammed?

  1. Report it to your local law enforcement.
  2. Notify your bank or credit card company if you've provided payment details.
  3. File a complaint with the Federal Trade Commission (FTC).
  4. Place a fraud alert on your credit reports.

Are there any emergency loans for applicants with bad credit?

Yes, many lenders offer emergency loans for those with bad credit. However, they might have higher interest rates and fees. Additionally, local nonprofits or charities might provide emergency financial assistance.

Does applying for a loan hurt your credit score?

It does if the lender makes a hard inquiry on your credit report, which may temporarily reduce your score by a few points. Multiple inquiries within a short period can have a more significant impact. There are lenders who make soft inquiries that don't affect your credit score.

Can I pre-qualify for a loan without hurting my credit score?

Yes, many lenders offer a pre-qualification process that involves a soft credit check, which doesn't impact your credit score. This gives you an idea of your loan eligibility and potential terms without affecting your credit.
 
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