When it comes to paying for some of life's biggest expenses — ahome renovation, a big medical bill, anemergency, aweddingor even a funeral —it can sometimes be easy to find yourself short on the cash needed to cover these costs. And if your savings don't stack up to the amount of money you'll need to cover such expenses, you may need to find a way to cover the difference.
This is where a personal loan can be helpful. Personal loans are actually one of the fastest growing debt categories in the U.S., in part because they offer flexibility that some credit cards don't: lower interest rates and the ability to receive a lump sum of money directly deposited to your bank account so you can use it as needed.
When taking on any form of debt, it's generally ideal to apply with good or excellent credit in order to score the best loan terms and conditions. But if you find yourself applying for a personal loan with poor credit, there are still options for you — you'll just need to keep a few things in mind before you begin the application process.
What we'll cover
- Can you get approved for a personal loan with poor credit?
- What interest rates do you qualify for?
- How long will you have to repay the loan?
- How will a personal loan impact your credit score?
- Bottom line
Can you get approved for a personal loan with poor credit?
Yourcredit history and credit scoresare important because they provide lenders with clues to determine whether they think you'll be a responsible borrower who will pay back the loan on time and in full. Keeping your credit score healthy can really be an asset when you apply for loans for big milestone purchases like buying a home or getting a car.
While it is possible to get approved for a personal loan if you have poor credit, the final decision, for the most part, rests with the lender you apply to. Some lenders will tell you upfront what their minimum requirements are.Happy Money, for example, requires a FICO score of 640 (which is within the "fair" range) or higher for approval.
Some lenders will actually cater to those with poor (or no) credit. Upstart Personal Loans, for example, will accept a FICO or Vantage score as low as 600, but they also accept applicants who haven't built up a sufficient credit history yet. OneMain Financial also approves applicants who have poor or fair credit for their personal loan products. (See our roundup of the best personal loan lenders for bad credit for more options.)
Upstart Personal Loans
Annual Percentage Rate (APR)
7.8% - 35.99%
Loan purpose
Debt consolidation, credit card refinancing, wedding, moving or medical
Loan amounts
$1,000 to $50,000
Terms
36 and 60 months
Credit needed
FICO or Vantage score of 600 (but will accept applicants whose credit history is so insufficient they don't have a credit score)
Origination fee
0% to 12% of the target amount
Early payoff penalty
None
Late fee
The greater of 5% of monthly pastdue amount or $15
Terms apply.
OneMain Financial Personal Loans
Annual Percentage Rate (APR)
18.00% to 35.99%
Loan purpose
Debt consolidation, major expenses, emergency costs
Loan amounts
$1,500 to $20,000
Terms
24, 36, 48, 60 Months
Credit needed
Poor/Fair
Origination fee
Origination fee starting at $25 to $500 or percentage ranging from 1% to 10% (depends on your state)
Early payoff penalty
None
Late fee
Up to $30 per late payment or up to 15% (depends on your state)
Click hereto see if you prequalify for a personal loan offer. Terms apply.
Not all applicants will be approved. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral) and your state of residence. If approved, not all applicants will qualify for larger loan amounts or most favorable loan terms. Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. APRs are generally higher on loans not secured by a vehicle. Highly-qualified applicants may be offered higher loan amounts and/or lower APRs than those shown above. OneMain charges origination fees where allowed by law. Depending on the state where you open your loan, the origination fee may be either a flat amount or a percentage of your loan amount. Flat fee amounts vary by state, ranging from $25 to $500. Percentage-based fees vary by state ranging from 1% to 10% of your loan amount subject to certain state limits on the fee amount. Visitomf.com/loanfeesfor more information. Loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB's Regulation Z such as college, university or vocational expense; for any business or commercial purpose; to purchase cryptocurrency assets, securities, derivatives or other speculative investments; or for gambling or illegal purposes.
Borrowers in these states are subject to these minimum loan sizes:Alabama:$2,100.California:$3,000.Georgia:$3,100.North Dakota:$2,000.Ohio:$2,000.Virginia:$2,600.
Borrowers in these states are subject to these maximum loan sizes:North Carolina:$9,000 for unsecured loans to all customers, $9,000 for secured loans to present customers.Maine: $7,000.Mississippi:$12,000.West Virginia: $14,000. Loans to purchase a motor vehicle or powersports equipment from select Maine, Mississippi, and North Carolina dealerships are not subject to these maximum loan sizes.
Example Loan:A $6,000 loan with a 24.99% APR that is repayable in 60 monthly installments would have monthly payments of $176.07.
Time to Fund Loans:Funding within one hour after closing through SpeedFunds must be disbursed to a bank-issued debit card. Disbursem*nt by check or ACH may take up to 1-2 business days after loan closing.
What interest rates do you qualify for?
When applying for any form of credit, the better your credit, the more likely you are to get favorable terms — like lower interest rates. This is also true of personal loans. If you have poor credit, you are likely to receive a higher interest rate on your loan. This means you'll spend more money paying back the loan.
Of course, the exact interest rate you ultimately receive will depend on the lender's range, but you can compare personal loans before you submit your application. This way, you can be sure you're getting the loan with the best terms for you.
Compare offers to find the best loan
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It's also worth noting that in some cases, it may make more sense to use a credit card with a 0% APR intro period since you can fund your purchase and make payments toward the balance without being charged any interest for a specified amount of time. The Citi Simplicity® Card, for example, gives you a 0% intro APR on purchases for 12 months from the date of account opening (after, 19.24% - 29.99% variable APR; see rates and fees). This option is only optimal if the credit limit is sufficient for covering your expense, and you're certain that you can repay the entire balance before the 0% APR period is over.
How long will you have to repay the loan?
The amount of time you have to repay a personal loan is often referred to as the loan's "term." Much like interest rates and credit score requirements, loan terms can vary from lender to lender. The good news is that this information is generally offered upfront so you can immediately consider if the repayment timeline works for you.
Loan terms can be as short as six months and as long as seven years. When you take on a loan that gives you a longer amount of time to repay the balance, you'll likely have smaller monthly payments — just be aware, though, that a longer term means you'll end up paying more in interest over time. Shorter terms, on the other hand, could result in a higher monthly payment but less interest accrued over the duration of the loan.
How will a personal loan impact your credit score?
There are a few ways that applying for and taking out a personal loan can affect your credit.
Much like with any other loan, mortgage or credit card application, applying for a personal loan can cause a slight dip in your credit score. This is because lenders will have to run ahard inquiryon your credit, and every time a hard inquiry is pulled, it shows up on your credit report and your score drops a bit. Keep in mind, though, that this dip is only temporary and continuing with good credit habits can increase your score again over time.
This being said, though, it's worth it to be as strategic as possible about when you decide toapply for a personal loan. Applying for a personal loan soon afterapplying for a new credit cardcould cause an even bigger drop in your credit score since a hard inquiry would be run for both applications.
On the plus side, taking out a personal loan can in fact help your credit score as you establish a track record for making on-time payments. This is especially true if you've been approved by a lender that accepts applicants with an insufficient credit file.Payment historyis the most important factor in calculating your credit score, making up 35% of it. Completing your monthly payments on time and in full can provide clues to a lender that you are very likely to pay back any money you borrow in the future. As a result of making consistent on-time payments, your credit score is likely to increase.
A personal loan can also helpimprove your credit mix. Your credit mix refers to the different types of credit accounts you have, including credit cards, student loans, mortgages, etc., and it makes up 10% of yourcredit score.
That's not to say that you should go out of your way to take on different kinds of debt, but having a variety of accounts can show lenders that you have the ability to manage multiple types of credit. This can make you seem more like a creditworthy borrower (just make sure you're not taking ontoo much debt).
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Bottom line
Personal loans — and the idea of taking on more debt — can seem daunting, especially if you already have a low credit score or no credit history at all. But when used responsibly, they can help you cover a large, necessary expense and better your credit score as you make on-time payments. If you're applying for a personal loan with poor credit, you'll just need to keep the above things in mind so you don't feel blindsided during the process.
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At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every loan article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of loans. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
