Having little money and a low credit score can be challenging, especially when you need to pay for something unexpected. The good news? Getting a personal loan with bad credit is not only possible—it’s become increasingly accessible in 2025. While traditional banks might close their doors, a growing number of specialized lenders have emerged to serve borrowers with credit scores below 580, offering reasonable rates and flexible terms that make borrowing both feasible and affordable.

This comprehensive guide will walk you through everything you need to know about securing a personal loan with bad credit, from understanding what lenders consider “bad credit” to comparing your options and maximizing your approval chances. Whether you’re consolidating debt, covering medical expenses, or handling emergency repairs, you’ll discover actionable strategies to access the funds you need without falling into predatory lending traps.

Understanding Bad Credit: What Lenders Really Look For

It’s a big deal to learn how banks decide if your credit is bad before you think about loans. Most financial institutions consider a credit score below 580 as “poor” or “bad credit,” though some lenders use slightly different thresholds. A credit score is a number that shows if you’re trustworthy with money. It’s made by people like FICO, who look at how you pay your bills, how much credit you’re using, how long you’ve had credit, new credit requests, and the types of credit you use.

What Constitutes a Bad Credit Score?

Credit scores typically range from 300 to 850, with the following general categories:

The Financial Impact of Bad Credit

Having bad credit comes with tangible costs. According to recent research, a credit score of 620 and below can cost Americans approximately $3,400 annually in higher interest rates and increased insurance premiums—a phenomenon financial experts call the “subprime tax.” This underscores the importance of not only securing financing when you need it but also taking steps to rebuild your credit over time.

Best Personal Loan Options for Bad Credit in 2025

The lending landscape has evolved significantly, with numerous financial institutions now specializing in serving borrowers with imperfect credit histories. This is what you need to understand about the things you can pick.

Specialized Bad Credit Lenders

Several lenders have built their business models around serving bad-credit borrowers, offering more lenient approval criteria and considering factors beyond just your credit score. Lenders like Upstart, Avant, and OneMain Financial specifically cater to borrowers with weak credit, often incorporating alternative data points such as education, employment history, and income stability into their approval decisions.

Current Interest Rates and Costs

Figuring out the real cost of getting a loan with a bad credit score helps you make a better decision. Average interest rates for bad-credit borrowers have remained below 31.00% for over a year, and below 30.50% for most of 2025, according to recent lending data. While these rates are significantly higher than what borrowers with excellent credit receive (typically 6-12%), they remain within the range consumer advocates consider acceptable.

Consumer advocates universally recommend avoiding any loan with an APR above 36%. At rates beyond this threshold, the cost of borrowing becomes prohibitively expensive, and you may find yourself paying back far more than you borrowed, potentially creating a debt spiral rather than solving your financial challenge.

Types of Personal Loans Available for Bad Credit Borrowers

Not all personal loans are created equal, and understanding the different types available can help you choose the best option for your situation.

Unsecured Personal Loans

These loans are the ones people get most often, and you don’t need to offer anything to borrow the money. Unsecured personal loans for bad credit typically range from $1,000 to $50,000 with repayment terms between 12 and 84 months. Since you don’t give anything to back up the loan, banks charge more extra money, especially if your credit isn’t good.

Secured Personal Loans

If you’re struggling to qualify for an unsecured loan or want to access better rates, secured personal loans offer a viable alternative. For these loans, you need to offer something valuable, like a car or savings, to borrow the money. Because the lender has recourse if you default, secured loans typically offer:

However, be extremely cautious with secured loans. If you don’t pay back the loan, you might lose the thing you promised, like a car or savings. Choose this only if you’re certain you can pay the loan back.

Credit Union Loans

Don’t overlook credit unions in your search. These member-run banks usually have simpler loan rules and lower costs than traditional banks. Lots of credit unions have special loans called “credit builder loans” that help people with bad credit get better with money while borrowing what they need.

How to Maximize Your Approval Chances With Bad Credit

While having bad credit presents challenges, you’re not powerless. A few plans can really help you get approved for a loan and get nicer terms.

Consider a Co-Signer

If someone with good credit signs your loan form with you, it can change things a lot. A co-signer with a strong credit history essentially lends you their creditworthiness, dramatically improving your approval odds and potentially reducing your interest rate by 5-15%. However, remember that your co-signer becomes legally responsible for the debt if you can’t pay, so this is a significant commitment that requires trust and clear communication.

Request a Lower Loan Amount

Lenders assess risk based partly on loan size. Asking for a smaller loan can make it a lot easier to get approved because it’s less risky for the bank. If you were planning to request $10,000 but could manage with $5,000, the lower amount might be the difference between approval and rejection.

Improve Your Debt-to-Income Ratio

How much of your money goes to paying debts each month, called your debt-to-income ratio, is super important for getting a loan. Most banks prefer if your debt-to-income is below 43%, but a few will work with higher numbers if your credit is low. Before applying, consider:

• Paying down existing debt to lower your DTI
• Getting more money by doing extra work like a side job or helping people online.
• Refinancing existing high-payment debts to reduce monthly obligations

Get Pre-Qualified First

Many lenders now offer pre-qualification, which lets you check your potential rates and approval odds without impacting your credit score. Pre-qualification uses a soft credit inquiry that doesn’t affect your credit, allowing you to shop around and compare offers risk-free. The hard check only happens when you officially apply, and it might lower your score by a few points for a bit.

Red Flags and Predatory Lending Traps to Avoid

Unfortunately, desperate borrowers often become targets for predatory lenders offering loans that create more problems than they solve. Protect yourself by recognizing these warning signs:

Guaranteed Approval Claims

No real bank can promise you’ll get the loan before they look at your papers. Companies advertising “guaranteed approval” or “no credit check” loans often charge exorbitant interest rates (sometimes 200-400% APR) that make repayment nearly impossible. These are typically payday loans or cash advances that trap borrowers in cycles of debt.

Upfront Fees

While legitimate lenders may charge origination fees (typically 1-8% of the loan amount, deducted from your disbursement), be extremely wary of lenders requiring upfront payment before approving your loan. This is a classic scam where fraudsters collect fees and disappear without ever providing a loan.

Pressure Tactics

Real lenders let you take time to read the rules and decide if it’s good for you. High-pressure sales tactics urging you to “act now” or “limited time offers” are red flags suggesting the lender has something to hide or is targeting vulnerable borrowers.

The Application Process: What to Expect

Understanding the application process helps reduce anxiety and ensures you’re prepared with necessary documentation.

Documentation You’ll Need

Most lenders require similar documentation regardless of your credit score:

• Government-issued photo ID (driver’s license, passport)
• Proof of income (recent pay stubs, tax returns, bank statements)
• Proof of address (utility bill, lease agreement)
• Social Security number for credit check purposes
• Employment information (employer contact, length of employment)
• Bank account information for fund disbursement

Timeline from Application to Funding

Lenders for people with bad credit usually give you the money quicker than regular banks. Lots of online places that help with bad credit loans give you:

• Instant pre-qualification: Receive estimated rates within minutes
• Same-day approval: Complete applications processed within hours
• Next-business-day funding: Funds deposited as quickly as 24 hours after approval

However, if you’re providing additional documentation, using a co-signer, or applying for a secured loan, the process may take 3-7 business days.

Rebuilding Your Credit While Managing Your Loan

Taking out a personal loan with bad credit isn’t just about accessing funds—it’s an opportunity to improve your financial standing for the future.

Payment Strategies That Rebuild Credit

Your record of paying bills on time is 35% of your credit score, and it’s the most important bit. Making sure you pay your loan on time all the time can gradually build up your credit score. Consider these strategies:

• Set up automatic payments: Never miss a due date by automating payments from your checking account
• Pay more than the minimum: Extra payments reduce principal faster and save on interest
• Make payments twice a month: By splitting your monthly payment in half and paying every two weeks, you sneak in an extra full payment yearly.
• Request credit limit increases elsewhere: After 6-12 months of on-time loan payments, request increases on credit cards to lower utilization

Monitoring Your Progress

Track your credit improvement by accessing free credit reports from AnnualCreditReport.com or using free credit monitoring services. You should see gradual score improvements within 3-6 months of consistent on-time payments, with more significant gains after 12-24 months.

Alternative Solutions to Consider

Before committing to a personal loan with bad credit, consider whether other options might better serve your needs:

Credit Counseling and Debt Management Plans

These kind groups that don’t chase money give free advice sessions and help you make debt plans that get lower fees from your creditors. This approach avoids taking on new debt while addressing underlying financial challenges.

Borrowing From Family or Friends

While often awkward, borrowing from people who care about you eliminates interest charges and credit checks. If you choose this route, treat it as seriously as a formal loan with written terms, agreed repayment schedules, and documented payments to preserve relationships.

Community Resources and Emergency Assistance

Many places in your community offer fast cash aid for emergencies like paying for electricity, home rent, medical bills, or groceries. Local churches, nonprofits, and government programs may provide grants or interest-free loans that don’t require good credit.

Final Thoughts: Making Smart Borrowing Decisions

Obtaining a personal loan with bad credit requires careful planning, thorough research, and realistic expectations. While your damaged credit score presents challenges, it doesn’t eliminate your options—it simply means you need to be more strategic in your approach.

The most important principle to remember: never let desperation drive you into a predatory lending trap. Take time to compare multiple lenders, read all terms carefully, and ensure you can comfortably afford the monthly payments before signing any agreement. A loan that solves an immediate problem but creates long-term financial hardship isn’t a solution—it’s trading one crisis for another.

Remember that your bad credit situation is temporary. Every on-time payment you make on your personal loan contributes to rebuilding your creditworthiness. Within 12-24 months of consistent payments, you may find yourself eligible for refinancing at better rates or qualifying for traditional financing options previously unavailable to you.

Use this moment as a catalyst for broader financial improvement. Create a budget, build an emergency fund even if you start with just $25 monthly, and address the underlying issues that damaged your credit in the first place. With patience, discipline, and smart borrowing choices, you can not only secure the funds you need today but also build a stronger financial future.