How can I borrow money with bad credit?

There are several ways to go about borrowing money when you have bad credit, such as joining a credit union, borrowing from friends and family, applying with a co-signer, or using one of the few unsecured credit cards designed for people with poor credit. Taking out an unsecured personal loan is unlikely to be an option, however, as most banks require a credit score of at least 585 for approval (660+ for a loan with no origination fee).

Often, when you have bad credit, the best option is to hold off on borrowing more money until you improve your credit standing. By waiting, you could get better terms and save money, as well as avoid taking on too much and making the situation worse. But sometimes borrowing money is unavoidable.

Before you borrow, it’s important to familiarize yourself with the risks and downsides of each option, along with the advantages. There are several ways you might be able to borrow money with bad credit, and we’ve divided the options into the categories “best” and “other” to help guide you toward safer choices.

Ways to Borrow with Bad Credit:

Best Ways to Borrow with Bad Credit:

1. Join a credit union. Unlike banks, credit unions are not for profit. They base membership on things like occupation or where you live. Because they take a more personal approach, credit unions may lend to people with credit scores 30 - 40 points lower than average, according to Experian. They also may factor things like income and credit utilization into their calculations less than banks will. You’ll likely get the lender’s maximum APR, but federal credit unions cap their rates at 18%. And you can shop around for the best deal.

2. Borrow from an online personal loan provider. The few online personal loan providers that lend to people with bad credit have minimum credit score requirements that are reportedly near the top of the bad credit range. Some examples are LendingPoint (585 minimum credit score), Avant (600) and FreedomPlus (620). You should expect to pay close to the lender’s maximum APR (often above 30%), along with an origination fee of 1% to 8% of the loan amount.

3. Get a peer-to-peer loan. Peer-to-peer loan websites allow you to request a loan for a certain amount and connect with individuals who are looking to lend money. Approval is based on a combination of your credit history, your income and other factors included on the site’s application. For the individuals lending money, this type of loan can provide a higher yield than putting the money in a bank account. For you, it could potentially mean an interest rate as low as 7% or as high as 36%, depending on the site (the average rate is 15%). You may also be charged extra fees.

4. Borrow from a friend or family member. Since you have a personal relationship with these people, they may be more willing to give you a loan. However, you risk ruining your connection if you are unable to pay them back. Make sure to put the agreement and its terms (interest rate, time frame, etc.) in writing to hold yourself accountable for repayment.

5. Find a co-signer. If you can find someone with good credit who is willing to co-sign your loan, your interest rates will be based on their credit history. However, only do this if you are sure you will make your payments on time. If you are late or you default, the other person’s credit rating will go down along with yours.

6. Compare credit cards for bad credit. Even if you have bad credit, it’s still possible for you to get a credit card. The easiest cards to get in your situation will be secured cards, which require a security deposit that serves as your credit line. But that means you’re not really borrowing money, since you’re spending against your own deposit. There are unsecured credit cards for bad credit, but they tend to come with high fees and low limits. For personalized credit card recommendations, join WalletHub for free.

Other Ways to Borrow Money with Bad Credit

Take out a secured loan. A secured loan uses something you own as collateral. In other words, if you don’t pay back the loan, your possession that you put up as security can be seized. Two of the most common examples of this are home equity loans and automobile title loans.

With home equity loans, you can borrow money from the value of your house minus what you still owe on your mortgage. The one benefit to this is low interest rates, but you must be prepared to make your payments. If you don’t pay the loan back, you could lose your house. In addition, you’ll need a credit score of at least 620 to qualify.

Automobile title loans let you borrow money using your car as collateral. The lender can repossess the car if you can’t pay the loan back. These loans typically last a month or less, though you may be able to extend them for additional fees. Auto title loans also have extremely high APRs. You should avoid them at all costs.

Pawn valuables. If you need a small loan and have a valuable possession, you can bring it to a pawn shop and get part of the value as a loan. You will have a certain amount of time to pay the money back with interest and reclaim your item, or the pawn shop can sell it.

This is not an ideal option, so you should only do this with items that you’re willing to risk losing.

Borrow from a retirement account. You can get a loan from your 401k before you’re retired. You’ll owe interest on this loan, but the interest will go back into your retirement account to help you make up for the money you would have earned by having it invested. You’ll need to pay the loan back in five years, or by the next tax day if you lose your job before then.

Get a refund-anticipation loan. This type of loan allows you to borrow against an expected tax refund. But these are vehicles for fraud and you should stay away from them, according to Lee G. Knight, a professor of accountancy at Wake Forest University.

Get a payday loan. You can borrow against an expected paycheck, but it will be extremely expensive. We do not recommend this highly predatory borrowing method.

Use a credit card for a cash advance. If you have a credit card, you can use it to get money from an ATM, write a check, or transfer money to a bank account. But we only recommend doing a credit card cash advance in an emergency situation because an expensive fee and interest rate will apply. Plus, there’s no grace period before interest starts accruing. Too many cash advances also may raise a red flag with your credit card issuer and could hinder your ability to get credit line increases in the future.

Final Thoughts

At the end of the day, waiting to build up good credit is the best option. But if you need a loan now, you should take time to consider all the available options before picking the one that works best for you.

In any case, it’s important to stay on top of your credit score and always work to improve it. Joining WalletHub for free lets you track your daily-updated credit report and score, and gives you personalized credit analysis to help you improve.