Having a bad credit score can make it difficult to get a loan. “Banks, credit unions, and financial institutions use credit scores and other factors of your credit history to determine the borrower’s ability to repay the loan,” says David Haas, co-founder of PowerPay, a financial technology company that provides loans for home improvement projects. “A bad credit score is somewhat of an indicator of your short, medium, and long-term ability to repay the loan, which is how banks make money.”

Bad credit scores are typically the result of too many credit cards, account balances that are too high, late or missed payments, bankruptcies or simply not having any credit history. But there’s a difference between limited options and no options, and there are companies that are willing to lend to people with subprime credit, but usually at a higher cost, so as to cover the potential risk.

The Most Important Factors For Loans For People With Bad Credit

When looking for a loan, there are several factors to consider, and the most important is the amount of interest you will be charged for your loan.

A person with FICO score over 660 is “considered a prime borrower and will receive reasonable market rate loan products,” says Haas. But the lower your score, the higher you can expect your interest rate to go. According to Haas, 12% – 14% is fairly normal under average circumstances, but interest rates could potentially go as high as 19.99% if the FICO score is low enough.

Other factors to consider include:

Fees – In order to cover the cost of processing a loan, some lenders will charge what is called an Origination Fee, usually as a percentage of the amount owed. An average fee might run between 1% to 5%, but it could go up to 8% in some circumstances. Also be on the lookout for annual fees or hidden fees.

APR –  It’s important to consider both the interest rate as well as the Annual Percentage Rate (APR), which includes the interest rate as well as any associated fees, and in the case of a mortgage loan, factors such as closing costs or insurance.

Recourse – In some circumstances, a loan might be secured against your house. Check to make certain this is the case, as you could potentially be putting your home at risk to get possessed by your creditors should you default on your loan.

Term – How long will your loan last, and how much will your monthly payment be? Make certain you pick a schedule you can stick to, so you don’t further damage your credit score with late payment.

How We Found the Best Loans for Bad Credit

When searching for the best loans for people with bad credit, we kept the following attributes in mind, first and foremost.


Many lenders are unwilling to work with someone with a FICO score less than 660, so we focused on companies willing to work with people with scores between 600 to 500.


Fees can be hard to avoid when securing a loan, and they’re very common for companies who work with people with low credit scores. We looked for companies that didn’t have higher than average fees, and were upfront about their fees rather than hiding them.


Lenders will try to mitigate their risks by charging higher loan rates to people with lower credit scores. We searched for companies that generally didn’t have rates out of line with industry expectations.

Secured or Co-signing Options

For people with particularly low credit scores, it might be necessary to find a company that will let you offer collateral to get a loan, or find someone who will cosign a loan with you. These factors aren’t necessary for everyone, but they’re good options to have.

Loans for People with Bad Credit FAQ

How Can You Improve Your Credit Score?

The best way to improve your credit score is to focus on paying your debts off on time. If you have multiple outstanding debts that are dragging your score down, consider taking out a bank or a consolidation loan to get all your debts into one one easy place, possibly with a lower interest rate, which will make it easier and faster to pay off.

Are Secured Loans A Bad Idea?

Not necessarily. Many lenders will be more comfortable issuing a loan if they know the customer has assets on the line such as a house or a car, and will be more inclined to offer a lower rate. Just make certain you choose a payment schedule that you know you can pull off, given your income.

Is The Company With The Lowest Interest Rates Always The Best Option?

A low interest is always the most important factor, but the cost of the loan is not the only thing to consider. Keep fees, term lengths and whether the loan is secured or unsecured in mind.

If You Are Locked Into a Policy For Several Years, and Then You Are Later Able To Build a Better Credit Rating, Is It Possible to Renegotiate the Terms of Your Deal? Or Are You Stuck With What You Initially Chose?

“In most cases, you are locked into your loan. A loan is a financial instrument that is often pooled with other loans and sold to investors,” says Haas. “Loans are generally locked, but most allow for prepayment without penalty. Renegotiating is not that common but you can always refinance, especially if your credit score has improved over time. The higher and better your credit score the better rates and terms you should get from the next lender.”

Original Source: https://bettercreditblog.org/best-loans-for-bad-credit/