How to Get a Loan With Bad Credit

Having bad credit, meaning scores below 580 on the FICO scale, makes most mainstream lenders either inaccessible or very expensive. The credit history that produces a low score signals to lenders a higher probability of default, which they price through higher interest rates, smaller loan amounts, and stricter terms. This is not discrimination; it is risk pricing based on historical repayment patterns.

But bad credit does not mean no options. Credit unions, online subprime lenders, secured loan products, and certain specialized lenders serve borrowers across the credit spectrum, including those with scores in the 500s. The challenge is navigating these options without falling into predatory products that exploit poor credit with fees and rates that make debt worse rather than better.

This guide explains the legitimate options for borrowing with bad credit, what rates are reasonable versus predatory, the red flags to avoid, and how borrowing strategically can actually help rebuild credit while meeting immediate needs.

Options for Borrowing With Bad Credit

Credit unions are consistently the best starting point for bad credit borrowers. As member-owned nonprofits, credit unions often have more flexible underwriting standards and more competitive rates than banks for similar credit profiles. Many credit unions have specific programs for members with challenged credit. If you are a member of a credit union or eligible to join one, start there.

Online subprime lenders like Avant, OppFi, and OneMain Financial specifically serve borrowers with credit scores below 650. These lenders accept credit profiles that mainstream lenders decline, but at significantly higher rates. Avant's rates start around 9.95 percent but can reach 35.99 percent for lower credit profiles. Understanding the APR and total cost before accepting a subprime loan is essential.

Secured personal loans require collateral, such as a savings account, vehicle, or other asset, that the lender can claim if you default. Because the lender has less risk with collateral backing the loan, rates are lower than unsecured subprime loans. Credit unions often offer share-secured loans where your savings account serves as collateral at very low rates.

What Rates Are Reasonable vs Predatory

For bad credit borrowers, an APR in the range of 15 to 36 percent from a licensed lender is unfortunate but not predatory. These rates reflect the genuine risk premium for lending to borrowers with poor credit history. Compare any loan offer against others in this range before accepting.

Rates above 36 percent for any loan type should be examined very carefully. The 36 percent threshold is widely used by consumer advocates and regulators as the maximum rate that is compatible with responsible lending. Products with triple-digit APRs, which exist in the payday loan and some fintech lending markets, are almost never appropriate regardless of the borrower's need.

Watch for fees that inflate the effective cost beyond the stated interest rate. Origination fees of 5 to 9 percent, prepayment penalties, and monthly maintenance fees all increase the true cost of borrowing. Compare the total cost of the loan across the full repayment period, not just the monthly payment amount.

What to Avoid Completely

Payday loans charge effective APRs of 300 to 400 percent or more. They are designed for two-week use but create debt traps when borrowers cannot repay and roll over the loan, paying new fees on the same principal repeatedly. The CFPB has documented that most payday loan revenue comes from borrowers in debt traps who repeatedly roll over their loans rather than from one-time emergency users.

Auto title loans use your vehicle as collateral for high-interest short-term loans. If you cannot repay, you lose your car. The consequences of losing a vehicle are often more severe than the original financial problem that prompted the borrowing. Auto title loans are among the most predatory products in the consumer lending market.

No-credit-check loan offers advertised prominently online frequently combine very high rates, large origination fees, and aggressive collection practices. The absence of a credit check is a marketing claim designed to attract desperate borrowers; the true cost is embedded in the loan terms.

Borrowing to Rebuild: How Bad-Credit Loans Can Help

A subprime personal loan at a high but legal rate, used responsibly and repaid on time, builds positive credit history that improves your score over the term of the loan. The installment loan tradeline, making every payment on time, is one of the most powerful credit-building mechanisms available to people with damaged credit.

Using a bad-credit loan to pay off even-higher-rate debt and then repaying the consolidation loan on time is a legitimate strategy that reduces interest cost and builds credit simultaneously. Refinancing the loan at a lower rate once your credit improves is often possible after 12 to 18 months of on-time payments.

Credit-builder loans at credit unions, which build savings while establishing credit history, are worth pursuing parallel to or instead of subprime personal loans when the purpose is credit building rather than accessing a specific amount of capital.

Final Thoughts

Bad credit does not mean no options, but it does mean expensive options if you are not careful. Navigating this market requires distinguishing between high-rate but legitimate lenders and predatory products that exploit desperation with fees and rates that trap borrowers in escalating debt.

Start with credit unions. Compare APRs across three to five lenders. Avoid any product with triple-digit APRs. Use borrowing as an opportunity to rebuild credit through consistent on-time payments. And work simultaneously on the behaviors that will improve your score and expand your options over the next 12 to 18 months.

Bad credit is a temporary condition for most people who respond to it with deliberate action. The loan that helps you now should also be a step toward better options later.