How to Get a Loan with Bad Credit

How can you tell if you have bad credit?  Bad credit is usually defined by a low credit score. In the United States, your credit score is determined by the Fair Isaac Corporation or FICO. They usually weigh various information about your credit and financial history to determine your what your credit score is. One of the biggest reasons you may receive a low score is by failing to make payments on your loans or debt on time. Another reason you may find yourself with a low credit score is if you don’t have much of a credit history in the first place, this is what they call a “weak credit history”. A third reason your credit score may be low is based on the amount of outstanding debt you have on previous loans.  

All of the above issues can contribute to a poor credit score, which is usually determined to be any credit score below 579. If you are hoping to borrow money with a decent interest rate, it is important for you to work on improving this number. This can be done in various ways, mainly by ensuring you make payments on time or by taking out a “credit building” microloan in order to strengthen your credit history.

All that said, if you are currently looking for a loan and don’t have time to improve your credit score there are still some options out there. Be prepared to pay higher than average interest rates with less than favorable conditions, and understand that lenders will look at you as a higher risk borrower with a low credit score.

Secured Loans

A great way to alleviate the risk of offering a loan to a borrower with bad credit is to ask them for some sort of collateral; this is what is called a secured loan. Essentially, in order to receive a secured loan, you must put up some sort of collateral. It could be your house, your businesses, your car, or anything else of roughly equal value to the loan itself. The collateral gives the lender security that they will be able to recover their losses if you are unable to repay the loan. The lowered risk of a secured loan then makes it a better deal for the borrow in terms of lower interest rates and APRs. All in all, a secured loan is probably one of your best bets in terms of chance of approval and lowest interest rates if you are a borrower with bad credit. Just be sure to make your payments on the loan, or you may end up losing your collateral.

Unsecured Loans

An unsecured loan is a loan without collateral. Generally, you sign a contract with a promise to repay the loan in full according to the terms and conditions of the lender. If you are unable to repay the loan, the lender will pursue collection of their money through a collection agency or other legal venues, which can be pretty tough to deal with if you’re already in a bad place financially. The rates of interest also tend to be higher on these loans. Unsecured loans include personal installment loans, credit cards, and student loans.


Generally, you should expect to see some pretty unfair rates and terms when applying for a loan with bad credit. That said, it’s important to be wary of lenders and make sure you’re not locking yourself into a predatory loan. Try and avoid payday loans at all costs; they are never a good idea. A typical payday borrower spends more than half of the year in debt to their payday lender alone. Instead look for a lender who offers personal installment loans. These loans come with longer terms, lower rates and are actually designed to be repaid.

It’s also very important to think about your ability to repay a loan before actually going through with taking one out. It can be tough when you’re in a tight financial situation where the money really seems necessary, but it’s important to think ahead and weigh the value of being financially strapped now, or stuck with debt that you can’t repay and an even worse credit score in the future. It’s also important to be wary of a lender that is eager to approve you for a loan even after evaluating that you won’t be able to properly make payments on it. If you have any doubts about repaying the loan then be wary of lenders who brush those feelings aside.  

All in all, the best way to secure a fair loan is to have a good credit score. It can seem hard to build up good credit after finding yourself in a bad financial situation, but if you can put in the work to improve your credit score, you will find that with the reduced interest rates and APRs, repaying loans becomes easier. A great way to do so is to take out a “credit building” microloan, as mentioned earlier, but there are also a ton of easy ways to improve your credit score, like setting reminders on your phone or laptop to make loan payments on time. Ceasing to increase the amount of debt you owe by not using credit cards is another great way to point yourself in the right direction. Also, if you think your credit rating is low because of an error, you can get a free copy of your credit score from any of the major credit checking firms. If you can find the error and have proof you can have your credit history revised.