Available Loan Options When You Have Bad Credit


It’s hard to get a loan when you have bad credit. Lenders use your credit score to determine what type of risk they’re taking by lending you money, and a low credit score is basically a flashing “High Risk” sign. With bad credit, you can expect many lenders to turn you down for loan applications, and others to only offer you loans with extremely high interest rates.

The ideal solution would be to improve your credit first, and then apply for the loan, but that’s not always feasible. You could end up in a situation where you need that loan right away, or you could plan to use the loan to pay off other debt and improve that credit score. Regardless of the reason you need a loan, you’re not entirely out of loan options just because you have bad credit. Here are a few loan options to consider:

Credit Union Loans

While credit unions offer similar services as banks, there’s a major difference – banks have shareholder owners who want to make profits, whereas credit unions are nonprofit organizations, and members of the credit union are the owners. This means that credit unions are often able to look past issues that would cause a bank to turn you down for a loan, including bad credit. Credit unions have a small business atmosphere, where demonstrating your character and explaining your situation can go a long way. Credit unions also actively seek out borrowers, so they want to issue loans.

You’ll have the best luck if you find a credit union that has something in common with you. Check if your employer or any other organizations that you belong to have a credit union. There are credit unions for the military, teachers, and several other professions.

Home Equity Loans

If you want to get the lowest interest rate possible, a home equity loan is an excellent choice. You obviously need to have equity in your home to be eligible for this type of loan, and your home is collateral for the loan, so it’s extremely important that you repay the loan to avoid losing your property.

A similar option is a home equity line of credit. Instead of getting a cash loan, a home equity line of credit is a credit account. You can spend up to your credit limit and you pay the line of credit back on a schedule.

Peer to Peer Loans

A peer to peer loan involves posting a listing on a peer to peer lending website explaining how much money you want and why you want it. Your credit score is also part of your listing. Investors go through listings and choose the loans they want to issue. Interest rates are usually low to moderate through these services, so if you can write an effective ad, these types of loans are an excellent choice.

Title Loans

For bad credit title loans, you provide your car title as collateral for the loan. You keep your car during the repayment period, and you get your title back once you’ve paid off the loan. If you don’t pay back the loan, the lender can repossess your vehicle.

These loans typically have fees and high interest rates, especially if you can’t repay the loan within the initial repayment period (usually a month) and have to roll it over. If you’re certain that you’ll be able to pay the loan back, a title loan may work well for you.


If you know someone with good credit who trusts you enough to co-sign on a loan, then that is usually the way to go. Since the lender uses your co-signer’s credit score to set the interest rate, you can qualify for a much lower interest rate than you would on your own. If you make the payments on time, you’ll improve your own credit score, making this a good option to both obtain your loan and boost your credit.

Of course, you need to have someone with good credit to cosign, and their credit will be on the line. If you have any issues with your payments, you’ll be hurting your co-signer’s credit score.

If you’ve been having trouble getting a loan due to your credit, consider alternative options. You don’t have to go through a bank. If you shop around, you should be able to find a type of loan that fits your needs, possibly even with a nice low interest rate.