The commercials are everywhere, 24 hours per day, seven days a week.
We’re talking about commercials that present information about personal credit. From credit card sales to pitches emphasizing the importance of knowing your credit score, commercials dealing with credit issues have taken over the small screen. You have credit karma, credit sesame, nerd wallet, and perhaps someday, credit guru and credit ninja.
We know the importance of good credit, but what happens when you want a personal loan and your credit is, let’s say, less than stellar. Bad credit hurts consumers at the worst possible times, such as for emergency expenses like medical bills and the repair of damaged vehicles. You do not have to visit a payday loan business or answer to the demands of a loan shark. Consumers with bad credit have several options for receiving much needed cash.
Let’s review basic credit principles, before we discuss the best personal loans for bad credit.
What is Considered Bad Credit?
Every consumer has a credit score that ranges from bad to excellent. Poor credit scores immediately raise red flags for lenders that either deny credit or charge an exorbitant interest rate for a personal loan. In addition to a higher interest rate, anyone flagged by lenders as a high credit risk might also additional face fees and surcharges.
Credit scores range between 300 and 850, with 300 representing the bottom of the credit barrel and 850 considered perfect. Although each lender determines what defines good and bad credit scores, the general rule is bad credit scores start at 300 and max out at 499. Poor credit scores cover the range between 500 and 579, while low credit scores run from 580 to 619. For this article, we focus on the lowest credit score range of 300 to 600.
Remember that you control your credit score. Although it takes time to heal financial wounds, you can establish good credit by applying sensible financial principles, such as paying off credit cards, minimizing the acquisition of new credit, and living within your means. Taking out a secured credit card is a sound financial strategy for improving your credit score. Secured credit cards have debt limits to hold cardholders more accountable for spending.
Types of Bad Credit Personal Loans
Consumers have two primary types of loans to consider:
- Secured
- Unsecured.
The two terms address collateral requirements. Here's a little more info about the requirements needed:
Unsecured Personal Loans require borrowers to sign a legally binding agreement to repay the personal loan within the period specified by the lender. The contract also defines the interest rate charged by the lender. Consumers that default on unsecured personal loans face litigation initiated by lenders.
Secured Personal Loans mean borrowers must put something of value up to cover the cost of defaulted personal loans. The higher the loan amount, the higher in value the collateral must be. Some of the items banks require for collateral include jewelry, vehicles, and real estate. Secured loans typically encompass mortgages and auto title loans.
How to Choose the Right Online Lender
The Internet has opened countless doors for businesses operating throughout the world. One of the sectors that benefits the most from the convenience of online shopping is the financial industry. From real time stock trades to tweaks of retirement portfolios, you can conduct banking business 24 hours per day, seven days a week online. This means you can shop for a personal loan by researching online loan packages.
The two most important factors for choosing a lender over the Internet are security and integrity. In an online world chalk full of scam artists and predatory lenders, you have to perform meticulous research to weed out the lenders who have developed poor reputations. We recommend you confirm any lender under consideration has registered in your state. Many online lenders, including several of the lenders on our list, have registered in some, but not all of the 50 states.
Contact your state’s financial regulation division or department to receive confirmation. For security, only consider online lenders that include an https at the beginning of the website URL. The “s” indicates the website puts up several barriers to thwart online thieves.
After you establish the security of a website, then read online customer reviews that describe the transparency of different lenders. What you want is a lender that clearly explains every fee and surcharge in simple to understand language within the proposed loan contract. Shady lenders add hidden fees and surcharges, as well as severe penalties for late loan payments. Read everything uploaded on an online lender’s website. Finally, verify that any lender you consider reports to each of the three major credit reporting bureaus (Equifax, Experian, TransUnion).
What You Should Expect by Taking out a Bad Credit Loan
We already mentioned the implications of a bad credit score on the annual percentage rate (APR)
lenders charge for loan interest. As a credit score declines, the amount of interest owed on a personal loan increases. If you have bad credit, do not looked shock when a lender offers a personal loan that comes with an APR exceeding 20 percent.
Consumers that have credit scores closer to the lowest rank of 300 might have limits placed on how much they can borrow. Lenders typically want bad credit borrowers to establish a history of paying off debts on time. Borrowers with bad credit that apply for secured credit can expect the collateral to be higher than what lenders ask from borrowers who enjoy good to excellent credit scores.
Here's the Top Online Lenders for Bad Credit Personal Loans:
Now that we have covered the fundamentals of bad credit, let’s review the short list of the best online lenders offering bad credit personal loans.
1. LendingPoint
A good start for finding the best personal loan for bad credit involves the research of online lenders that target bad credit borrowers. LendingPoint meets the criteria for a lender specializing in bad credit loans.
The online lender allows bad credit borrowers to take out loans between $3,500 and $20,000. APRs range from 17.46% to 35.99%. LendingPoint rewards customers that reestablish sound financial practices by lowering APRs.
Every personal loan comes with a 5% origination fee and you need to earn at least $25,000 per year to qualify for a bad credit personal loan. Your debt to income ratio should not be higher than 45%. LendingPoint is registered in 17 states, which means you should visit the online lender’s website to see if the company has registered in your state.
The online application is comparatively easy to complete. You just need to submit the basic personal information found on your driver’s license and bank statements. The online application takes about five minutes and if approved, LendingPoint sends you several personal loan options that match your financial profile.
2. Avant
The average credit score for an Avant borrower is a little below 600. A majority of Avant borrowers see quick improvements in their credit scores when they do business with the online lending company. An average 12-point credit score bump within the first six months happens when Avant borrowers consolidate debt.
Borrowers that have credit scores below 600 can expect to pay an APR that falls between 9.95% and 36%. Avant sends customers monthly credit score updates, as well as offers access to the ReadyforZero app that presents tips for reducing personal debt. One of the best personal lenders for bad credit sets a borrowing limit between $1,000 and $35,000, with payback terms quicker than average from two to five years.
Avant appeals to borrowers who want to pay for home improvement projects or settle uninsured emergency medical claims. More than 600,000 customers have applied and received a decision within minutes of sending personal financial information to the online lender. Few lenders that operate both online and offline provide customers with the valuable credit score improvement tips that Avant gives its customers.
3. OneMain
As an established online lender, OneMain specializes in authorizing personal loans for borrowers who possess credit scores that average 550. The online lender typically charges an APR between 25.10% and 36%, but the high interest rates rapidly decrease when you start making monthly personal loan payments on time. OneMain lends on a scale ranging from $1,500 to $25,000, with loan origination fees as low as $25 and as high as $40.
Depending on your credit score, you might have to put up collateral to receive a secured personal loan from OneMain. The online lender accepts trucks, campers, motorcycles, and automobiles as collateral. OneMain sends an appraiser to your home to assess the value of the collateral, and the vehicles you choose to back up a secured personal loan must come with full insurance coverage.
OneMain differs from other online lenders because the company requires borrowers to visit a branch location to verify personal and financial information. However, the branch visit is helpful for numerous borrowers that want to review different loan payment options. Personalized service complements the efficiency of applying for a bad credit personal loan online.
4. BadCreditLoans
Although not a direct lender, BadCreditLoans acts a bad credit personal loan clearinghouse by serving as a loan market for consumers who possess bad credit. Borrowers complete one request form and the online lending facilitator submits your information to numerous lenders. Most borrowers receive multiple loan offers that include mostly favorable terms for bad credit loans.
BadCreditLoans caters to borrowers that rank at the bottom of the credit score list. Because of its operating philosophy, the online lending hub offers bad credit personal loans between $500 and $5,000. You can expect to pay off a short term loan, with repayment plans running from three months to five years. The upside to short term bad credit personal loans is you can quickly reestablish a good credit history.
You do not have to jump through many hoops to obtain a bad credit personal loan from BadCreditLoans. The online lender requires borrowers to be a minimum of 18 years old, as well as show proof of earning a consistent income over the previous 90 days. There is no minimum credit score, but that does not mean you will receive approval from one of the lenders participating in the BadCreditLoans network.
5. PersonalLoans
As another option for going through a bad credit personal loan marketplace, PersonalLoans sends your application to several lenders that specialize in loaning money to consumers looking to rebound from financial distress. APRs differ from nearly 6% to 35.99%. The low end APR of 6% represents one of the best financing deals anyone with bad credit can expect to receive.
PersonalLoans also offers consumers a large range of loan amounts, starting at $500 for a quick infusion of cash to $35,000 that finances the purchase of a new car. Lending terms are also flexible, with online lenders requiring between six months and six years to repay bad credit personal loans.
By working with different lenders, PersonalLoans also offers flexibility for the minimum credit score required to be considered for loan approval. The standard loan approval requirement is you must show proof or earning at least $2,000 per month. An additional requirement unique to PersonalLoans is you cannot have a late payment longer than 60 days on your financial record, nor can you have a recent debt charge off.
Whats my Credit Score?
How do you find out about your credit score? The Fair Credit Reporting Act (FCRA) made learning about your credit score easy and Free. Each of the three primary national credit reporting bureaus must provide you with one free credit report every 12 months.
The FCRA requires each credit reporting bureau to present accurate information, while giving you the legal right to challenge any financial information you deem to be incorrect.
As the governing agency behind the FCRA, the Federal Trade Commission continuously modifies provisions within the landmark law for adapting enforcement policies to ever changing technology.
The FTC requires the three major credit reporting bureaus to include personal and financial information such as residency, how you pay creditors, and the record of legal matters involving your financial affairs. National credit reporting bureaus sell your financial information to creditors and employers that evaluate your fitness for employment or for assuming debt.