Personal Loans for Bad Credit: Safer Options and What to Avoid

Quick answer: The safest personal loans for bad credit usually come from credit unions, including small Payday Alternative Loans (PALs), from secured loans backed by collateral, or from a loan with a co-signer. Avoid payday and title loans, which often carry triple-digit APRs. As a general benchmark, many consumer advocates consider rates above 36% APR a red flag.

If your credit score is low, finding personal loans for bad credit can feel like walking through a minefield. Some lenders are legitimate and fairly priced, while others are built to profit from desperation. This guide walks through the safer options, the ones to avoid, and how to decide whether a loan helps or hurts.

Not sure which option fits your situation? You can request a free consultation using the form on this page to talk through personal loan and debt relief choices with no pressure.

What Counts as “Bad Credit” for a Personal Loan?

Lenders define bad credit differently, but scores below roughly 580 on the FICO scale are commonly considered poor, and scores up to about 669 are often called fair. Many lenders set their own cutoffs, so a denial at one lender does not mean every lender will say no.

Lenders typically look at more than your score:

• Income and employment: Steady income can offset a weak score.
• Debt-to-income ratio: The share of your monthly income that already goes to debt payments.
• Recent negative marks: Late payments, collections or a recent bankruptcy.
• Loan purpose and amount: Smaller loans are often easier to approve.

For a deeper look at how scores are built and improved, see our guide on how to fix your credit.

Safer Options for Personal Loans for Bad Credit

1. Credit unions

Credit unions are nonprofit, member-owned institutions, and they often weigh your whole financial picture rather than just a score. Federal credit unions cap most loan rates at 18% APR, with a limited exception for certain short-term loans. That ceiling is far below what many online bad-credit lenders charge. You usually need to join first, and membership is often based on where you live, work or worship.

2. Payday Alternative Loans (PALs)

PALs are small-dollar loans offered by some federal credit unions as a safer substitute for payday loans. Under National Credit Union Administration rules, PAL loans are small (roughly $200 to $2,000 depending on the program), carry an interest rate cap of 28%, and have limited application fees. Terms vary by credit union and program type, so confirm details directly. You can read the official rules on the National Credit Union Administration website.

3. Secured personal loans

A secured loan is backed by something you own, such as a savings account, certificate of deposit or, in some cases, a vehicle. Because the lender has less risk, rates tend to be lower than unsecured bad-credit loans. The tradeoff is real: if you stop paying, you can lose the collateral.

4. Loans with a co-signer or co-borrower

Adding a trusted person with stronger credit can improve your approval odds and lower your rate. But a co-signer is legally responsible for the debt if you miss payments, and late payments can damage their credit too. Only ask someone who understands the risk and can afford it.

The cheapest bad-credit loan is usually the one you ask a credit union about first.

Loans to Avoid When Your Credit Is Damaged

Some products are marketed heavily to people with poor credit, and they can make a tight budget much worse.

• Payday loans: Short-term loans due on your next payday. The fees often translate to APRs near 400% or higher, and rollovers can keep you borrowing.
• Auto title loans: Your car title is the collateral, so missed payments can mean repossession of the vehicle you need for work.
• Pawn or rent-to-own traps: Not always predatory, but total costs can far exceed the item’s value.
• “Guaranteed approval” offers: Legitimate lenders must evaluate your ability to repay. Upfront fees before you receive any money are a classic scam warning sign.

The Consumer Financial Protection Bureau offers plain-language guidance on payday loans and borrower protections. Also see our guide on how to spot and avoid debt relief scams.

Understanding APR Caps and the 36% Benchmark

APR (annual percentage rate) includes interest plus certain fees, so it is the best way to compare loans. A commonly cited benchmark is 36% APR: the Military Lending Act caps rates at 36% for active-duty service members and their families, and many consumer advocates use the same number as a rough affordability line.

Rate caps vary by state, and some lenders partner with banks in other states to offer higher rates. Always check the disclosed APR rather than assuming a cap applies.

Here is an illustrative comparison. These are rough estimates, not quotes, and your actual terms will depend on your lender and profile:

• Credit union loan: often up to 18% APR for federal credit unions.
• PAL loan: up to 28% APR for eligible members.
• Online bad-credit lender: commonly in the 25% to 36% range, sometimes higher.
• Payday or title loan: often 300% APR or more.

A low monthly payment can hide a very high total cost, so always compare APR and total repayment.

How to Compare Offers and Protect Yourself

1. Check your credit reports first. Errors can hold your score down; you can get free reports at AnnualCreditReport.com.
2. Prequalify with several lenders. Soft pulls let you compare without hurting your score.
3. Look at the full cost. Add up origination fees (often 1% to 8% of the loan, an estimate), interest and any prepayment penalties.
4. Confirm the lender reports to credit bureaus. On-time payments can help rebuild your score.
5. Test affordability. Use our debt payoff calculator and a realistic budget to see whether the payment fits.

Is a Personal Loan Even the Right Move?

If you want a loan to consolidate credit card debt, run the numbers carefully. A consolidation loan only helps if its APR and fees are meaningfully lower than what you pay now. Our guide on using a personal loan for debt consolidation explains how to qualify and weigh the pros and cons.

Depending on your situation, other paths may fit better:

• A debt management plan through a nonprofit credit counselor, which may lower interest without a new loan.
• Credit card hardship programs, which some issuers offer during financial difficulty.
• Other debt consolidation options, including balance transfers, compared side by side.

For a broader overview, browse our debt consolidation and loans guide. And if you are weighing a loan against bigger relief steps, a qualified professional can help you compare.

Ready to see which personal loan or debt option may fit your budget? Request a free, no-pressure consultation using the form on this page.

Frequently Asked Questions

Can I get a personal loan with a score under 600?

Often yes, but options narrow and rates rise. Credit unions, secured loans and co-signed loans are usually your best bets. Approval is never guaranteed and depends on income and existing debt as well as your score.

Will applying for a loan hurt my credit?

Prequalification typically uses a soft inquiry that does not affect your score. A formal application usually triggers a hard inquiry, which can cause a small, temporary dip. Multiple hard inquiries for the same loan type within a short window are often treated as one for scoring purposes, though this varies.

Is 36% APR acceptable?

It is a widely used benchmark for the upper limit of what many advocates consider affordable, but lower is better. If you can qualify at a credit union for 18% or less, that is usually the stronger choice.

Should I use a loan to pay off credit cards if my credit is bad?

Only if the new APR and fees are clearly lower than your current cards and you can keep up with the payments. Otherwise, a nonprofit credit counseling plan or hardship program may cost less. A qualified counselor can review your numbers with you.

This article is for educational purposes only and is not financial or legal advice. Costs and rates mentioned are estimates and vary by lender, state and borrower.

Related: How to Raise Your Credit Score Fast: What Actually Moves the Needle