8 Best Unsecured Personal Loans You Can Get With Bad Credit
Posted on January 11, 2021 in Loans
Having bad credit in America today is unfortunately a rather common problem. Roughly 31% of Americans have a credit score rated as “subprime,” which is a credit score between 580 and 669. A little over 11% of that group owns a credit score classified as “very poor credit” which is a score anywhere less than 580.
Anyone whose credit score falls under either of these classifications will no doubt have a harder time finding an available lender for any loan amount, and if they do get a loan offer, it’s sure to be packed with high interest rates, origination fees, and sizable monthly payments.
One available option to those in need of a loan is what’s known as an unsecured personal loan.
What is an unsecured personal loan?
An unsecured personal loan is an installment loan, so when being repaid, alongside interest of course, it will be in fixed monthly installments until the loan is eventually paid off.
What makes this different from other standard loans is the unsecured part. Any loan that’s unsecured means there is no collateral being offered along the loan. In the case of auto loans or mortgages which are secured loans, the car and house are offered as collateral, meaning that failure to repay the loan could result in forfeiture of said asset.
While that means non-payment could result in a massive loss, it also helps get the lowest rate, not to mention getting the loan application approved in the first place even with a lower credit score or poorer credit history. This is because lenders know a borrower wouldn’t want to have their vehicle repossessed, so they are more likely to repay the loan.
In the case of an unsecured loan, the loan is granted based primarily on the credit check, which often means higher interest rates and even the need for a cosigner for those with less creditworthiness.
The 8 Best Unsecured Personal Loans for Bad Credit
The following list can be broken down into three different types of loans. The first group will be labeled as “installment loans,” followed by “short term,” and then “credit card”.
No type of loan is better or worse than the other, but they offer different choices for people looking to explore their options, especially when the purpose of the loan varies such as trying to get funds for home improvement versus debt consolidation versus just needing some extra cash one month.
These loans are the standard version of an unsecured personal loan. They are repaid in monthly installments generally lasting more than six months and up to 72 months or six years.
As a result, the interest rate on these loans is very important to consider since the loan can take such a substantial amount of time to repay — even a 10% APR can rack up thousands of dollars within the repayment period. These types of loans will usually be larger than the other types of loans found on this list but will also have some of the lower interest rates as a result.
These loans can range anywhere from $500 to $10,000 with interest rates starting at 5.99% to 35.99% and repayment terms lasting from 3 to 72 months.
These loans can range anywhere from $500 to $35,000 with interest rates starting at 5.99% to 35.99% and repayment lengths lasting from 3 to 60 months.
These loans can range anywhere from $500 to $35,000 with interest rates starting at 5.99% to 35.99% and repayment lengths lasting from 3 to 72 months.
These loans can range anywhere from $500 to $5,000 with varying interest rates and varying lengths of repayment.
These loans can range anywhere from $250 to $5,000 with varying interest rates and varying lengths of repayment.
Short Term Loans
Short term loans, sometimes known as cash advance or payday loans, are typically repaid in a single lump sum that includes the principal borrowed amount, plus finance charges alongside the interest rate. As opposed to installment loans that give months and even years to be repaid, the loan terms of this type of unsecured personal loan usually requires funds to be repaid in a few weeks at most. As a result of the short length of the loans, the interest rates will often be several dozen times higher than that of a traditional installment loan even for those with good credit, but the repayment term will be considerably shorter.
These loans can range anywhere from $100 to $1000 with interest rates starting at 200% to 2,290% with a varying length of repayment. Special requirements for this loan include having an income of $1,000 or more a month and a job for at least the last 90 days.
These loans can range anywhere up to $2,500 with varying interest rates and varying lengths of repayment. This loan service is not available in the states of New York or Connecticut.
Credit Card Loans
This loan style is not often advised because carrying any balance on a credit card is not ideal if you’re trying to work toward excellent credit. However, when in desperate times, sometimes desperate measures are the only way to get out. When considering the interest rates of a short term loan, the APR (annual percentage rate) is often in the triple or even quadruple digits. These credit card loans will have much lower interest rates than those and that’s why they’ve made the list as acceptable options on our list of unsecured personal loan option — plus, credit unions, online lenders, and even financial institutions usually have a fairly quick and easy application process that offers a soft credit inquiry prequalification first to check your eligibility before having you put in info about your debt-to-income ratio.
This card offers a credit limit between $300 and $1,000 with an interest rate ranging from 24.99% – 29.99% (variable), and an annual fee from $75 to $99. One prerequisite is the applicant must have a checking bank account, but otherwise it’s relatively easy to get approved for the Surge Mastercard® credit card with a minimum credit score of 300+.
Ways Personal Loans Can Help or Harm Credit Scores
If used responsibly, an unsecured personal loan can go a long way toward helping to rebuild a low credit score. Anytime that a payment on a loan or debt is made on time it’s reported to the major credit bureaus, and is reflected positively on a credit report. However, failure to make payments and even late payments can result in not just late fees, but the credit score being affected negatively, which can drop the score lower. This is actually why autopay is so highly encouraged for those trying to rebuild credit.
Below is a list of the positive and negative ways unsecured personal loans can affect a credit score.
- Payment History: The most important factor of a borrower’s credit use is the history of payments and whether they were made on time or not. In fact, 35% of an individual’s FICO score is made up of payment history, so when a something like a Sofi personal loan is repaid on time (or even ahead of time given there are no prepayment penalties) it can easily help to improve the borrower’s credit score.
- Amounts Owed: When considering credit cards, the amount of credit utilized is taken into heavy consideration for a credit score. If an account has a credit limit of $2,000 and $1,000 is owed then the ratio would be 50% credit utilized. The higher the number the worse the credit score will be as a reflection. Using a personal loan to help pay off credit card debt can be a very wise decision for those seeking to help improve their credit score for qualifying candidates so long as they don’t use their new available credit to rack up more debt.
- Missed Payments: When considering an unsecured personal loan the borrower should be very confident they can pay back the loan in total and as quickly as possible. Missed payments on loans or loans going into collection can be devastating for a credit score, with some lenders reporting the fault as quickly as the next business day.
- Inquiries: When applying for a loan, the lender will generally run a hard inquiry on the applicant’s credit report. Every time an inquiry happens it typically takes a few points off a credit score, even temporarily. So, applying for multiple credit accounts or loans can do quite a lot of damage in a very little amount of time if you’re not prequalified or if you aren’t too sure you have a chance of being approved.
The Takeaway: If an individual is looking for a loan but cannot find one due to a bad credit score, there are several solid options available in the form of an unsecured personal loan for those with bad credit, though often at the cost of high interest rates.
Getting an unsecured loan with a bad credit score can be next to impossible, and very frequently will be flat out denied by lenders. The options for potential loans can be few and far between, and even if found, the terms may not be very agreeable.
While bad credit can limit a borrower’s options in terms of loans, there are still options available, and financial assistance in other forms are also available to those that seek it.
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