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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 7, 2021

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Summary

  • The best types of bad credit loans will vary from person to person depending on credit score and loan amount
  • Credit union loans, joint personal loans, and home equity loans can help you get the best rates with bad credit
  • The best bad credit loan rates will come from secured loans with a cosigner in most cases

With so many expenses, it’s obvious that many people run into situations where they need personal loans, including those with bad credit. Comparing the three types of bad credit loans can help avoid unnecessary expenses.

Nobody wants to pay more for interest and fees than they need to. We’ll guide you with the best bad credit loans, how to get a loan if you have bad credit, and alternatives to loans if you have bad credit.

Soon, you’ll be ready to start comparing your rates with different types of bad credit loans. To get a jump-start, enter your ZIP to get free personal loan quotes from top lenders near you.

What are bad credit loans?

Bad credit loans are loans that are provided to policyholders with a subpar credit score. This could be due to limited credit history or because they’ve failed to make payments on time.

In short, someone who is classified with bad credit will likely have limited loan options. Eligible loans will most likely carry higher interest rates than they would for someone with good credit:

Personal Loan APR by Credit Scores
Credit Score RangeAverage APR
Less than 560113.62%
560-579105.39%
580-61965.70%
620-63938.64%
640-65926.15%
660-67918.53%
680-71911.88%
720+7.63%
Compare RatesStart Now →

You’ll see above that your interest rates (APR) will be drastically higher with bad credit than they will with good credit. The best bad credit loan rates will be available to those with some type of equity and a reliable co-signer. If you don’t have either, you might want to consider a short-term loan that can help you get by.

For example, payday loans offer cash advances to let you pay for expenses in a hurry if needed. The idea is that you’ll repay the loan the next time you get paid.

In this case, if you have a bill due in the middle of the month but don’t get paid until the end of the month, the lender will basically advance you the money so that you don’t fall behind. Ideally, these are the best option for extremely bad credit loans.

There are also bad credit loans with guaranteed approval, but again, these come at a cost. Getting a guaranteed loan approval with no credit check is just as costly as securing a loan while reporting your bad credit score to the lender.

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What are the 3 types of bad credit loans?

If you’ve been laid off or have run into a major financial obstacle, obtaining a loan can be a huge help. Having bad credit shouldn’t prevent you from any chance at getting a personal loan.

What loan options do you have?

#1 – Credit Union Loans

For starters, it could be worthwhile to join a credit union to secure a line of credit. In general, credit unions tend to offer some of the most affordable bad credit loan interest rates on vehicle loans, student loans, mortgage loans, and more.

Your ability to become a credit union member will likely depend on your credit history, amongst other things. Credit union members will basically be considered shareholders and that flexibility, combined with non-profit status, helps to keep down interest rates and fees.

#2 – Joint Personal Loans

Let’s face it, if you want to get a good interest rate, you’ll have to wager something to your lender to instill confidence in your ability to repay the loan. If you don’t have much personal equity, you might need more help.

Thankfully, many lenders offer joint personal loans or co-signed loans. On the positive side, this could help your odds of approval and help you earn a better rate. On the negative, your co-signer will be on the hook if you aren’t able to repay your debts.

#3 – Home Equity Loans

As mentioned above, it’s challenging to get a personal loan without something that convinces the lender they’ll be repaid. If you can’t afford to repay the money, you can barter a portion of your home’s equity.

Let’s be clear, home equity loans a good for bad credit if you truly believe that you’ll be able to repay the loan. Otherwise, you might eventually lose the title to your home and all of the equity you’ve built through mortgage payments.

What is the difference between secured vs. unsecured personal loans?

If you have bad credit, finding the right personal loan might take some digging. Your credit score will play a big role when determining which loans and rates you’ll be eligible for.

Rates are almost always cheaper with a secured personal loan compared to an unsecured loan. The difference between secured and unsecured personal loans is that a secured loan has some type of equity available to the lender if you are unable to repay it.

That said, there are different types of secured and unsecured loans. If you have credit and you’re looking for a way to get a better interest rate on a loan, you’ll have a couple of options. Our top choices are below.

What is considered a bad credit score?

To many people, bad credit seems pretty subjective. In reality, it actually is. Bad credit can be classified as a different value from company to company. Some examples include:

  • Experian – Below 670
  • NerdWallet – Below 630
  • CapitalOne – Below 580
  • Credit Karma – Below 600
  • Bankrate – Below 579

There doesn’t appear to be any set standards in the industry that illustrate what is considered a “bad” credit score. This is unfortunate because it makes it difficult to know what your cutoff point truly is.

In any case, if you have a credit score below 700, you could be subjected to higher interest rates, higher fees, and reduced eligibility on loans or credit products.

What makes up a bad credit score?

Credit scores are generated over time and are influenced by a number of factors. According to the Federal Trade Commission, credit scores are influenced by the following:

  • Payment history
  • Credit usage
  • Credit history
  • New inquiries
  • Number of accounts

Some of the above factors will be weighted differently than others. Your payment history is most likely the most influential towards your credit score. This means that you should prioritize paying on time when able.

How to Choose the Best Bad Credit Loan

Getting a loan with bad credit can be costly. To minimize your expenses on interest, credit union loans, joint holder loans, and home equity loans could be the most cost-effective.

By now, you should have a decent understanding of a few types of bad credit loans. Before you go, enter your ZIP to get free loan quotes from top lenders near you.