How to Get a Loan With Bad Credit

Last Updated: March 22, 2024

Understanding Your Options and Improving Your Chances

A bad credit rating could cost you almost $400 over the life of the loan. While that may not seem like much, the more you borrow and the longer the time frame to repay, the greater the difference between excellent and poor credit score repayment amounts become.

If you can hold off on getting a loan, try to improve your credit score. It will be worthwhile in the end.

Loans for Bad Credit

Payday Loans - payday loans are an extremely poor financial choice. Most payday lenders have predatory terms, meaning they will most likely take advantage of your situation and can charge outrageous higher interest rates and fees. You can end up with an interest rate of 400% or more. This means that if you borrow $100, you will pay back $500. In addition, you usually have until the next payday to repay the loan.

Car Title Loans - car title loans are another poor financial choice. You use your car as collateral for the loan. This means that the car title loan company can seize your car if you do not repay the loan.

Payday Alternative Loans - these are payday type loans but are subject to more regulation than payday lenders. These are available at some federal credit unions. Unlike traditional payday loans, alternative payday loan interest rates can not exceed 28% (if you borrow $100, you will repay $128) and have low application fees. You also have a longer repayment term - usually between one and six months.

Secured Personal Loan or Collateral Loan - this type of loan does not require you to put something of value that guarantees that you will repay the loan. Like a car title loan, if you fail to repay the loan, the collateral can be seized. However, since personal loans through financial institutions have more regulation, the terms will not be as predatory. Your interest rate is based on your credit score and generally for longer terms than 30 days. A secured loan through a bank or credit union is far safer than a car title loan.

Unsecured Personal Loan - this type of loan does not require any collateral. As with the secured loan, your interest rate is based on your credit score and for longer time frames. Since there is no collateral, the interest rate will be slightly higher than a secured loan.

Peer-to-Peer (P2P) or Marketplace Loans - in P2P loans, investors fund loans. Depending on the P2P system, credit scores may not factor as highly as they do with traditional lenders. Make certain that you are dealing with a reputable P2P lender if you choose this route.

Credit Union Loans - credit unions are owned by their account holders and can be more accommodating than banks. Try local credit unions for loans as they may be more willing to work with bad credit applicants.

Bad Credit Lenders - a quick search of the internet will turn up results for companies that will lend to people with bad credit ratings. Always research these and understand the terms that you are being offered. Some of these are online payday lenders while others offer more expensive opportunities to start improving your credit rating.

Budgeting Tips

Getting your finances in order can help free up cash to pay down debt and improve your credit. There are budgeting tips to help you prioritize debt payments.

Cut Non-Essentials

Review recurring expenses for things you can cancel or reduce, even temporarily, to put more money toward debt.

• Gym memberships
• Streaming services
• Cable packages
• Monthly box subscriptions

Downsize Housing

Consider downsizing to a smaller living space or moving in with roommates or family to drastically cut one of your largest expenses. List your home for sale or speak to your landlord about moving when your lease term is up.

Lower Utility Bills

• Adjust the thermostat to reduce heating/cooling bills
• Unplug devices when not in use to save on electric
• Contact providers to ask about discounts, payment assistance, or bill averaging to even out seasonal highs/lows

Meal Plan

Plan inexpensive meals and shop weekly with a grocery list. Buying only what you need can reduce food spending by 25-50%. Look for generic brands, buy in bulk, and freeze extras.

Rebuilding Credit Over Time

To rebuild your credit after financial setbacks or a drop in scores, focus on responsible habits over 6 months to a year to see meaningful improvement.

• Review your credit reports to identify and dispute any inaccuracies
• Make at least 6 months of consistent, on-time loan and bill payments
• Pay down credit card and line of credit balances to below 30% of limits
• Become an authorized user on someone else’s credit account (if possible)
• Open a new secured credit card and use it responsibly

These proactive steps demonstrate that you can manage additional credit responsibly over an extended time. As positive payment patterns show up on your credit history and balances drop, your score can steadily climb back to the 700+ range.

Be patient and persistent - rebuilding takes diligence. However, staying focused on responsible behaviors will open up better borrowing rates and opportunities. Expect to see solid improvement around the 6 to 12-month mark if you stick to it.

Alternatives to Loans
Hardship Programs

Many lenders like banks, credit card companies, mortgage lenders, landlords, and utility companies have hardship or assistance programs. You may be able to defer payments, lower minimum payments, or pause payments altogether for an agreed-upon time. Terms depend on the lender and program.

Borrow from Family or Friends

Ask trusted friends or family members about borrowing money you can repay on reasonable terms. Draw up an agreement to make expectations clear. While interpersonal dynamics introduce some risk, rates and fees are much lower.

Medical Bill Assistance

Ask hospitals and healthcare providers about financial assistance options, Medicaid coverage, payment plans, or medical credit cards. There are also medical bill negotiation services and advocates who can lower your balances.

Buy Now, Pay Later

In-store and online retailers like Target, Walmart, and Amazon offer point-of-sale installment loans. These split a purchase into equal payments due biweekly or monthly with zero interest. Approval is largely based on the ability to repay rather than credit scores.

FAQs

Conclusion

Getting approved for loans with poor credit takes effort, but is possible. Start by understanding your credit scores and reports to address any issues. Compare loan options for fair rates and terms that fit your situation, considering both online lenders and credit unions. 

Adding a cosigner can also offset credit risk. While you rebuild scores through responsible habits, consider alternatives like family loans that bypass credit checks. For any type of borrowing, avoid predatory, high-interest products that promote cycles of debt. And consider free debt counseling if unsecured balances become unmanageable. 

With proactive steps, diligence, and a little help along the way, improved financing options will open up. The key is sticking to responsible long-term habits that demonstrate you can manage payments and additional debt.

Pacific Debt, Inc

If your credit rating is so bad that you're not having any luck with lenders and you have unsecured debt over $10,000, you may need professional help reducing your debt.

Pacific Debt, Inc. is an award-winning debt settlement company. If you’d like some more information on how to get out of debt, we are happy to help. We will explain all your options and help you decide which is the best option for you. We can even refer you to trusted partners who may be able to assist you better.

If you have more questions, contact one of our debt specialists today. We offer a free consultation and we’ll help explain your options to you.

*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.