If you need to borrow money but your credit is less than excellent, you might get bad credit. These loans are aimed at people with incomplete credit who can provide evidence of their income and ability to repay the loan. Because of their poor credit rating, consumers who take advantage of bad credit loans typically pay much higher interest rates and loan fees. Customers with bad credit may also be restricted in terms of the size of their credit as well as the terms and conditions for repaying their credit.
In our view, LendingClub is the best option when it comes to getting a loan when you have bad credit.
Borrow money with LendingClub
What to do if you think you have bad credit
Step 1 – Get Your Actual FICO Score
The only way to find out if you have bad credit is to take a look at your FICO score. This is not difficult as many companies offer free online access. While your FICO credit score isn’t the only credit score you have, it is used by most of the lenders who offer personal loans.
According to myFICO.com, the credit score ranges are as follows:
- Exceptional: 800 and higher
- Very good: 740 to 799
- Good: 670 to 739
- Mass: 580 to 669
- Bad: 579 or less
If your credit score drops below 579, there is a good chance that you will only be approved for bad credit. However, if your credit is only “fair” then chances are you could get bad credit credit.
Step 2 – Compare several offers
Once you have your creditworthiness, you will want to compare quotes from different lenders to see what fits your needs. You can use this tool to start this process.
Read on to find out how Good Financial Cents breaks down the best bad credit loans and what to look for.
Best Bad Credit Loans Of 2020
Still, if you feel like you are a candidate for a bad credit loan, it makes sense to compare loan options to find the best deal. Loans for bad credit may come with higher interest rates and higher fees, but some are still better than others.
For the purpose of this guide, we’ve compared all of the bad lenders to see how their loan products stack up. The following loans are the best of the best when it comes to bad credit loans:
Bad credit scores
Before applying for a loan from any of the above lenders, it is helpful to have a basic understanding of loan offers, interest rates, and other important details. The following individual credit checks can help you determine which lender is offering loans that are right for your situation.
# 1: LendingClub
LendingClub is a peer-to-peer lender that operates outside of traditional banks. This means that loans financed through the platform are initiated by private investors instead of banks. You may also be able to obtain funding through the LendingClub if you cannot otherwise be approved for a loan.
Investors looking for higher returns on their money may agree to offer credit to consumers with bad credit who are at higher risk. As a result, LendingClub personal loans have an annual interest rate of between 6.95% and 35.89%. Obviously, loans with interest rates on the higher end of the scale are given to those with low credit scores.
Before you apply, it is important to know that LendingClub charges an origination fee, which can be up to 6% of your loan amount. You can repay your loan anywhere from 36 to 60 months. If you repay your loan early, there is no prepayment penalty.
- Advantages: No Minimum Credit Requirement: Check your interest rate online without a hard query on your credit report
- Disadvantage: Potential for a high origination fee and a high interest rate
# 2: Avant
Avant is another lender that frequently provides personal loans to consumers with low credit scores. With Avant, your interest rate is between 9.95% and 35.99% and you can repay your loan between 24 and 60 months. A loan financing fee of up to 4.75% of your loan amount is also required, which increases the cost of borrowing.
Avant claims they have loaned $ 4 billion to more than 600,000 consumers to date and that they have a 95% customer satisfaction rate. You can apply for a personal loan online through Avant and even check your interest rate without a hard query on your credit report.
- Advantages: No minimum creditworthiness requirements; You can check your rate online without a hard query on your credit report
- Disadvantage: High APRs and loan fees for bad credit
# 3: LendingPoint
LendingPoint is another bad lender offering personal loans to consumers willing to pay the required APR. LendingPoint loans have an annual interest rate of between 15.49% and 35.99% and your borrowing fee can be up to 6% of your loan amount.
You can repay your loan for a period of 24 to 48 months. Loans are offered in amounts up to $ 25,000. LendingPoint also lets you check your plan online without checking your credit report. You need a minimum loan value of 585 to qualify for any of their loans.
- Advantages: Check your rate without a hard query; low minimum credit requirements
- Disadvantage: Expensive APRs and loan origination fee; Loans are not available in every state
# 4: OneMain Financial
OneMain Financial offers personal loans ranging from $ 1,500 to $ 20,000. You can repay your loan for a period of 24 to 60 months. Interest rates range from 18.00% to 35.99% and an origination fee may also apply.
You can apply for a bad credit loan online with OneMain Financial and have your loan approved and funded within days. You can even check your rate and gauge your ability to qualify without a hard query on your credit report.
Finally, note that OneMain Financial has 1,600 physical locations in 44 states. In order to fund your loan, you will need to visit a OneMain Financial location and meet with a loan specialist.
- Advantages: No minimum creditworthiness requirement; borrow up to $ 20,000
- Disadvantage: Potential for expensive APR and loan origination fees; You need to go to a physical branch in order to finance your loan
# 5: upstart
Upstart is a unique online lender that makes it easier for borrowers with bad credit to qualify for a loan. This company takes more than your creditworthiness into consideration when approving you for a personal loan, which means they add more weight to additional factors such as your income and education.
Qualified borrowers can access loan funds between $ 1,000 and $ 50,000 with a repayment period of 3 or 5 years. However, the interest rates range from 5.69% to 35.99% depending on creditworthiness and other factors.
Fortunately, Upstart loans do not have any prepayment penalties. You can also check your rate online without putting a hard query on your credit report.
- Advantages: No minimum creditworthiness requirements; borrow up to $ 50,000
- Disadvantage: Potential for expensive APR and loan origination fees
How we select the best loans for bad credit
The above lenders offer loans that can be inordinately expensive considering interest rates and fees. However, since expensive credit is the norm for consumers with bad credit, it still represents the best credit options for those with risky credit profiles.
With that in mind, here are the factors we considered for the loans for this list:
Simple rate check
The ability to check your loan rate online without a hard query on your credit report is beneficial for potential borrowers who are not ready to fill out a full loan application. We’ve ranked lenders who offer this option higher as a result. A simple interest rate check can help you get an idea of your interest rate and loan fees before you apply.
No prepayment fees
While borrowing for bad credit usually comes with high interest rates and higher loan fees, we think prepayment penalties are crossing the line. We looked for bad loans that do not have prepayment penalties as borrowers should be able to repay their loans early.
Lenders that allow you to apply for a personal loan online are far more convenient. Hence, we’ve given credit companies that offer this option a better credit rating. Bonus points have been applied when you can fill out the full loan application online and fund your loan electronically.
We also looked at individual credit ratings on corporate credit sites and websites like Trustpilot. While all lenders have their share of bad credit ratings, the lenders that made our list have significantly more positive user reviews than bad ones. Most of the lenders who cut our ranking have customer approval rates above 90%.
Loans For Bad Credit: What To Look For
Bad credit is not ideal as it comes with high interest rates and fees that add to the overall cost of borrowing. However, some bad loans are also significantly “better” than others depending on how they charge and what interest rates they offer. Here is everything you should look for before you apply.
Consider the effects of high rates
First, it can be very helpful to check your interest rate with multiple lenders in the same area before you apply. There is a big difference between paying 25.00% APR and 35.99% APR, although neither rate is great. So you want to pay the lowest interest rate that you can.
How Much Difference Can It Make? Imagine for a moment that you had to borrow $ 10,000 and repay it over 60 months. This is what your monthly payment would look like – and how much total interest you would pay – if you were to repay your loan at three different interest rates over 60 months:
|Loan APR||Monthly payment||Total interest paid|
|10.99%||$ 217.37||$ 3,042.46|
|25.99%||$ 299.35||$ 7,960.73|
|34.99%||$ 354.84||$ 11,290.34|
Avoid origination fees if you can
Also, try to avoid borrowing fees if you can. However, this can be tricky if your credit score is on the lower end of the scale. Borrowing fees are pre-calculated as a percentage of your loan so you cannot avoid them – even if you repay your loan early. They also add unnecessary costs to your bad credit loan without any benefit to you, the borrower.
Check for any prepayment penalties
Also, check for any prepayment penalties on your loan and, if possible, opt for a lender who does not apply these fees. It would be nice to have the option to repay your loan early with no penalty when you have the money you need to do it. If you can repay your loan early, you can pay much less interest over the life of your loan.
Bad Credit Loans: Should You Improve Your Credit First?
If you are concerned about the impact of bad credit credit on your finances, it may be worth spending some time improving your score before you apply. For example, being able to pay all your bills several months ahead of time or on time can have a positive impact on your score. This is because your payment history is the most important factor in your FICO score. According to myFICO.com, this factor alone accounts for 35% of your score.
The same is true if you are able to pay off debt to reduce your loan utilization. This advice is based on the fact that the amount you owe in relation to your credit limits is the second most important factor that makes your FICO score at 30%.
In the meantime, try to avoid opening and closing too many accounts as either of these steps can also affect your score.
If you’ve been able to move the needle and get your credit rating up to “fair” or “good”, there is a very good chance that you will qualify for a cheaper personal loan with better interest rates and terms. Of course, this is not always possible if you need to borrow money sooner rather than later.
The bottom line
Bad credit loans can come with expensive APRs, but they are often the only last resort option for borrowers whose credit has taken a hit. When you are in the market for a loan and you know that you need a bad credit loan, the best way to find the best deal is to compare loan options.
Keep an eye out for bad credit with the lowest interest rate and lowest origination fee that you can qualify for.
Also, look for lenders who can check your interest rate and pre-qualify online before completing a full loan application.
With enough research, you should get bad credit that will help your finances rather than make them worse.