You can get a loan, but there's a catch.

If you’re having trouble getting ahead on your finances, you’re not alone. In 2014, the average American had a VantageScore of 666 on a scale ranging from 300 to 850. The VantageScore model is used by Equifax, Experian and TransUnion to give consumers a consistent credit score number that’s easy to understand. The lower your score, the harder it might be for you to qualify for loans and financing.

Furthermore, the average consumer has $28,496 in debt, which is a 2.3 percent rise from 2013. If you’re one of these people who have a large amount of debt but also a low credit score, a personal loan can be a savvy way to consolidate your debt or pay off a large expense.

“Personal loans are typically unsecured, meaning they don’t require collateral to obtain, and you can usually use them for a variety of purposes — unlike something like a mortgage or an auto loan,” said Saundra Latham, a writer for personal finance blog The Simple Dollar. “Unlike a credit card, you’re usually going to have a fixed interest rate, so you’ll have the same payment every month until your loan is paid off.”

Where to Get Personal Loans for Bad Credit

When you apply for a personal loan, lenders tend to review your credit history, income and overall financial information to assess you as a borrower. They use this information to decide if they’ll lend you the money and to determine your interest rate. Usually, the lower your credit score, the less money you can borrow and the higher your interest rate. Getting a personal loan with bad credit is not impossible, however.

“There are some personal loan options for borrowers with poor credit, but keep in mind that you will probably be looking at a very high interest rate,” said Latham. “Some lenders do offer secured personal loans, which means you might be able to qualify at a lower interest rate by offering some collateral. Getting a co-signer is also a possibility, but then you’re risking someone else’s financial health if you can’t keep up with payments.”

You can search the personal loan options at your bank or local credit union, but you should also look at online lenders and peer-to-peer lenders. For example, Lending Club and Prosper are two popular personal loan websites. In fact, you might have a better chance securing a loan from these types of sites if you have bad credit.


“Some online lenders and more reputable consumer lending services are worth a look,” said Latham. “Some traditional banks won’t lend personal loans to those with bad credit, and that’s if they offer personal loans at all — many don’t. Credit unions might be a possibility because they are often more flexible than banks.”

If you have a hard time getting approved for a personal loan from a lender because of your bad credit score, it is still recommended that you stay away from payday loans and auto title loans. Many lenders for these loans won’t require a credit check at all, which means it’s probably not a good deal.

“The interest rates end up being astronomical, and it’s very easy to get trapped in a cycle where you continue borrowing just to pay back the old loan,” she said. “Lawmakers in several states have gone after predatory lenders like this, but you still need to be on your guard.”

Related: 7 Ways to Get Quick Cash Besides Risky Payday Loans

Pros and Cons of Personal Loans With Bad Credit

Like any financial product, personal loans for bad credit carry a few advantages and disadvantages. You’ll want to consider each one before getting a loan.

1. Higher Interest Rates

The biggest disadvantage of personal loans for bad credit: You could be facing higher interest rates. “You will probably be looking at a higher interest rate than mortgages, home equity loans, auto loans, and in some cases, student loans,” said Latham. “Lenders see personal loans as a bit higher risk than these other loans.”

A personal loan with a higher interest rate might mean that you will be paying significantly more money over the life of the loan.

2. Credit Damage

If you’re unable to make your loan payments and pay the interest; you could end up in even more debt and default on your loan. As a result, you will severely damage your already bad credit; making it near impossible to get other loans or even apply for a job.

Read: 5 Signs You Need to Get a Personal Loan

3. Unexpected Costs and Big Purchases

When used correctly, a personal loan can provide some benefits and financial relief during those unexpected, and pricey, surprises. For example, fixing a broken leg can cost up to $7,500; and the average cost of a three-day hospital stay is approximately $30,000. Plus, even fun celebratory occasions can easily break your budget, as the average cost of a wedding is $31,213.

With a personal loan, you can finance the big purchases in your life. Just remember to always try to get the lowest rate possible; even if you have a low credit score — so that you don’t end up paying more than you should.

4. Credit Repair

Let’s say that you’re able to qualify for a personal loan with low interest rates; despite the fact that you have bad credit. If you’re able to successfully consolidate your debt, pay off your debt and make your monthly payments on time; your credit score can experience a drastic improvement.

How to Consolidate Debt With a Personal Loan

Another major benefit of a personal loan is its ability to help you consolidate debt. “You’ll have flexibility with how you use the loan, but one of the most common purposes is debt consolidation,” said Latham. “Getting a fixed interest rate makes budgeting for your loan payments easy. You’re also typically going to have a lower interest rate and more borrowing power than you would with a credit card.”

In fact, a personal loan could be the cure if you have high-interest credit card debt. But, as Latham says, it isn’t a “magic bullet.”

“The good news is that they can help you get organized,” she said. “Instead of remembering to pay several bills, you’ll be paying one. And if you’ve been late on payments because you can’t stay on top of all your due dates, that’s huge.”

The key to debt consolidation, however, is to always keep your spending in check. “Debt consolidation won’t help you if you continue to overspend,” said Latham. “Which is a very real risk when you suddenly find some breathing room in your budget again.”

Related: When to Use a Credit Card Vs. Personal Loan for Debt Consolidation

How a Personal Loan Can Save You Money

Pretend you owe $15,000 on a credit card with an 18.00% APR, and you’re making monthly payments of $300. Imagine you’re also paying off a $7,000 credit card balance with a 21.00% APR and are making monthly payments of $140.

Using this loan consolidation calculator from Wells Fargo, you can pay off your debt with a personal loan from the bank in four years instead of 10. Additionally, the Wells Fargo Debt Consolidation Loan will lower your interest cost by $19,056.70. Clearly, obtaining a personal loan is something to seriously consider if you want to save money; even if you have bad credit.

Personal loans won’t work for everyone, but they can help many people get their finances back on track. If you have bad credit and are struggling to manage your debt, pay for a large expense or increase your credit score; it’s definitely worth researching to see if this route will work for you.

This article by Laura Woods first appeared on and was distributed by the Personal Finance Syndication Network.


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Article last modified on January 2, 2018. Published by, LLC . Mobile users may also access the AMP Version: Where Can I Find Personal Loans with Bad Credit? - AMP.