If you have a low credit score, getting approved for a loan can be challenging — but not impossible. Bad credit loans are designed specifically for borrowers with poor credit histories. While these loans can often come with higher interest rates and stricter terms, they can offer a crucial financial lifeline in emergency cases. Bad credit loans come in many forms — such as personal loans, secured loans and payday loan alternatives.

Types of bad credit loans

Bad credit personal loans

Best for applicants who want an unsecured loan with a long repayment term

It may be harder to get a loan with bad credit, but some lenders specialize in serving borrowers with less-than-stellar histories. Bad credit personal loans are unsecured and, like any other personal loan, can be used for many purposes, including debt consolidation, emergencies or large expenses. However, bad credit personal loan interest rates tend to be higher because the lender may be taking on a great risk.

Pros

• Lower rates than many other unsecured loan options
• Funds can be used for nearly any (legal) purpose
• Repayment terms typically range from one to seven years

Cons

• High APRs, up to 36 percent
• Bad-credit borrowers may not qualify for longer repayment terms
• Origination fees can be high, up to 12 percent of your loan amount

Secured personal loans

Best for borrowers with collateral who are certain they can make the payments

A secured personal loan is debt backed by an asset that the lender can seize if you default on the loan. Because the loan is insured by the asset, it poses less risk to the lender. This type of loan may be easier to qualify for or may come with lower rates.

Although this type of financing isn’t as common as an unsecured personal loan, plenty of big-name lenders offer it. Best Egg allows you to secure a loan using your car or home fixtures, like cabinets and vanities. Upstart also accepts vehicles as collateral. Many banks and credit unions may provide loans secured by your savings account balance or certificate of deposit (CD).

Pros

• Easier to qualify with bad credit
• Potentially lower rates than you’d receive on unsecured loans
• Larger loan amounts possible

Cons

• Risk losing your asset if you default
• Approval may take longer if an appraisal is needed
• Loan amount may depend on the asset’s value

Payday alternative loans

Best for credit union members who need a small loan

Some federal credit unions offer payday alternative loans (PALs), but you need to be a member to get one. The loans are unsecured and are considered a safer option than payday loans. They typically have a maximum loan amount of around $2,000 and repayment terms can last from a few weeks to several months, depending on the credit union’s product offering. Importantly, rates are capped at 28 percent, compared to the 400 percent APR you may receive on a payday loan.

To find a credit union near you that offers PALs, use the NCUA’s locator tool and filter by institutions that provide these loans.

Pros

• Safer and more affordable than payday loans
• Can provide fast funding
• Accessible credit and income requirements

Cons

• Must become a credit union member to qualify
• Not every credit union offers this option
• Lower amounts and shorter repayment terms than personal loans

Cash advances

Best for credit card users who need cash right away and can promptly repay the balance

A cash advance lets you convert some of your credit card’s available balance to cash. The amount you borrow is rolled into the outstanding balance on your credit card. You’ll likely pay a higher interest rate than on regular credit card purchases, but there are ways to minimize the total cost of a cash advance.

We recommend saving cash advances for emergencies. Although they offer a rapid solution if you’re experiencing financial hardship, they can be costly and can keep you in the credit card debt cycle for an extended period.

Pros

• No application required — funds are available instantly
• No credit check required
• Less risky than payday or title loans

Cons

• APRs around 30 percent — higher than on regular purchases
• No grace period
• Must have a card with open credit

Bank agreements

Best for bad-credit consumers who belong to a bank or credit union that offers agreements

Some banks offer short-term loans for smaller amounts to account holders with a positive banking history. Qualification criteria vary among banks, so reach out to yours to learn more.

Credit unions also offer short-term loans with interest rates capped at 18 percent. You will need to be a member of the credit union to qualify, but they often have less strict criteria than banks and other lenders.

Pros

• Lower interest rates than other bad-credit options
• Funds available quickly

Cons

• More difficult to qualify for
• Must have an open checking account
• Less common than other types of bad credit loans

HELOCs or home equity loans

Best for homeowners who need a sizable amount of cash

Home equity loans and lines of credit are popular options for borrowers with less-than-perfect credit. These loans are second mortgages and allow you to convert a percentage of the equity you’ve built up in your home to cash. Even better, there are very few limits on using your funds.

The downside is they’re secured by your home, so you risk foreclosure if you default on the loan. Still, they could work if you haven’t found better options elsewhere and don’t foresee any issues paying on time.

Before you apply, research lenders to see if you meet the minimum eligibility criteria. It can be challenging to find a lender if your credit score isn’t at least in the mid-600s. However, some lenders may do business with you if you have an acceptable debt-to-income (DTI) ratio and meet other guidelines.

Pros

• Lower interest rates than unsecured loans
• Larger loan amounts, depending on your equity
• Longer repayment terms, typically up to 30 years

Cons

• Risk of foreclosure
• Longer funding timeline, typically 30 to 45 days
• HELOCs have variable interest, making it difficult to predict repayment amounts

Bad credit loan types to avoid

Payday loans

Payday loans are an expensive, short-term solution for borrowers who can’t qualify for other forms of funding. These loans should only be used when all other options have been exhausted. Their predatory structure can keep you stuck in a debt cycle if you can’t repay the balance in full, plus fees, when it’s due. That’s why there are payday loan alternatives to provide more options to borrowers in need.

Many borrowers choose these loans because lenders don’t complete a credit check. Loan amounts range between $500 and $1,000, and funding turnarounds are typically the same or next day. But these loans are expensive, many with APRs of over 400 percent. Plus, the repayment timeline is often much shorter than other types of funding — you’ll often have to repay the entire balance by your next payday. Otherwise, you’ll face hefty fees and may have to roll what’s due into another payday loan.

Pawn and car title loans

Both pawn and car title loans are instant loans secured by a valuable item. The value of your collateral, not your credit, determines your borrowing power. However, you literally hand over your asset until you can repay the loan.

Pawn shop loans require you to give your asset to the shop to hold until you pay the loan back. The pawn shop will lend up to 60% of the value of your asset, then charge interest during your repayment term. You may have a few months to pay back the loan, but if you don’t pay it back in time, the shop can sell your asset.

Car title loans let you borrow between 25 and 50 percent of your vehicle’s value. But there’s a catch — you must own your car outright and hand over the title until the loan is paid in full. Most car title loans come with short repayment periods between 15 and 30 days, and loan amounts generally start at $100. If you don’t pay back the loan, the lender can repossess and sell your car.

Alternatives to bad credit loans

Although bad credit loans are designed to help consumers who have trouble accessing funding, they can be costly and predatory. If you’re facing a financial hardship or unexpected expense, there may be some viable alternatives outside of bad credit or emergency loans.

• Consider a charity. Local charities, organizations, churches and nonprofits frequently offer help to members of their communities. You can join forums like Reddit and find local Facebook groups to see what options may be available to you.
• Ask a relative or friend for money. To avoid problems later on, draft a repayment plan that works for both parties.
• Use a credit card. If you have available credit on a credit card, the cost of swiping it is probably much lower than you’ll pay if you take out a payday loan. See if your credit card issuer offers hardship plans with lower minimum payments.
• Take out a 401(k) loan. 401(k) loans provide easy access to funds without a credit check but can delay your retirement and incur tax penalties.
• Inquire about a hardship loan. Some employers offer hardship loans to provide financial support to employees facing unexpected expenses or other financial challenges.

Most importantly, work towards building your emergency fund and improving your credit. This way, you can qualify for loan options with better terms, higher personal loan amounts and more competitive interest rates in the future.

Bottom line

Bad credit doesn’t mean you’re out of options — but it does mean you need to proceed with caution. From personal loans to payday loans, there are a variety of financing choices available, each with its own set of risks and costs. Before taking out a bad credit loan, compare lenders, understand the terms and consider alternatives. The right loan for you will offer short-term relief, and with smart planning, can be a step toward rebuilding your credit.

FAQs about bad credit loan types

• What is the easiest loan to get with bad credit?
  

  While payday loans, pawn loans, cash advances and car title loans are easy to access and generally don’t require a credit check, they are risky and expensive. We recommend exploring lower-cost options first.

• Can I get a loan with extremely bad credit?
  

  Yes, there are places to get a bad-credit loan. Some lenders use factors other than credit score — like your income or education — to determine your eligibility. No-credit-check loans exist but typically come with high costs and risks. Or if you have a vehicle or valuable asset you don’t mind putting up for collateral, you could try a secured loan. For the latter, proceed with caution, as you could lose your asset if you cannot repay what you borrow.