Types of bad credit Best loans and their uses 2022


Types of bad credit loans and their uses

If you have bad credit and need cash fast, you may not realize that you still have a loan that you qualify for. Bad credit loans can be an option if you’ve been turned down by your bank or credit union and don’t have the option of borrowing from relatives or friends.

There are many types of bad credit loans to choose from. They often come with steep interest rates that can cost you several hundred or even thousands of dollars more over the life of the loan. Therefore, it is advisable to exhaust all your options and explore other options before applying for a bad credit loan. However, if you are in a pinch, bad credit loans may be what you need.

Types of bad credit loans and their uses

What is a bad credit loan?

Bad credit loans are designed for customers with low credit scores who cannot get approved for funding elsewhere. You can expect higher interest rates and fees with these loans because the risk of default is higher.

The FICO scoring model, which 90 percent of lenders and borrowers use to make credit decisions, ranges from 300 to 850. Lenders who offer bad credit loans typically target customers in these FICO score ranges:

  • Poor credit: 300 to 579
  • Fair Credit: 580 to 669

While these are expensive for borrowers, the upside is that you can get the cash you need when facing an unexpected expense or financial crisis. Additionally, some lenders offer a streamlined application process and same or next day funding.

Secured Loans

Secured loans cater to customers with less than perfect credit but require some type of collateral to be approved. Title loans and home equity loans are popular secured loan options, but you risk losing your car or home if you default on the loan payments.

However, they can work if you haven’t found better options elsewhere and have no problem repaying the loan on time.

Before you apply for a secured loan, research several lenders that offer title and home equity loans to determine if you meet their eligibility criteria. You’ll have better luck with a title loan if your credit score is in the trenches, but you may qualify for a home equity loan with some lenders.

No-Credit-Check Loans

As the name suggests, these loan products do not require a credit check to get approved. They lure borrowers with very low credit scores who have been rejected for other loan products but come with hefty interest rates to offset the risks they pose to the lender. As a result, you may end up with a monthly payment that doesn’t quite work for your budget and put yourself in more financial trouble over time.

No-Credit-Check Loans

Some lenders will extend the loan term on these loan products to give you a lower, more attractive monthly payment. However, this means that you will pay more interest over the life of the loan because the lender will have more time to charge you interest.

Common no-credit-check loans include payday loans, installment loans, auto title loans, and cosigner loans.

Payday Loans

Payday loans provide a short-term solution to credit-challenged borrowers. These loans typically come with exorbitant interest rates, sometimes in the triple digits, and are capped at around $500.

Most payday lenders will not check your credit to qualify you for a loan, and you can receive loan proceeds within hours. However, payday loans should only be used as a last resort as the cost of borrowing is high. Also, you usually have to pay back what you borrow by the next payday or face hefty fees if you extend the loan term. This can lead to a vicious cycle that is difficult to escape.

Cash Advance

A cash advance allows you to draw funds from your credit card’s available balance up to a preset limit set by your credit card issuer. The amount you borrow is rolled into the outstanding balance on your credit card. You’ll likely pay a higher interest rate than you would on regular credit card purchases.

A cash advance is usually done by withdrawing cash from an ATM. You can also request a cash advance from a teller at the credit card issuer’s physical branch location (if applicable).

If possible, only use cash advances in financial emergencies. Although they offer a quick fix if you’re experiencing financial trouble, they can be expensive and keep you in credit card debt for a long time.

Bank Agreement

Some banks offer short-term loans for small amounts to account holders with a positive banking history. Eligibility criteria vary by financial institution, however, you may want to check with your bank or credit union to determine if this is an option for you.

Bank Agreement

Bad credit loan options

Although bad credit loans are designed to help consumers who have difficulty obtaining funds, they can be expensive and predatory in some cases. If you are facing a financial crisis or unexpected expenses, here are some viable options:

Ask a relative or friend for money. Be sure to draft a payment plan that works for both parties to avoid problems later.

Use a credit card. If you have credit available on a credit card, the cost of swiping it will probably be much lower than what you would pay if you took out a bad credit loan. However, you want to pay off what you spend sooner to avoid spending a fortune in interest.
Look for local help. Some communities have religious and nonprofit organizations that offer financial assistance to people experiencing financial crisis.

Most importantly, work towards building your emergency fund and improving your credit. That way, you won’t need to borrow money the next time life happens. Additionally, you’ll potentially qualify for loan options with better terms and more competitive interest rates if you don’t have enough savings to cover a financial emergency.

Related: How to choose the best bad credit loan company 2022

Types of Loans for Bad Credit

When it comes to personal loans, you can apply for two types: secured and unsecured loans. However, if you are having trouble qualifying for a personal loan, consider other loans for bad credit.

Secured and unsecured bad credit personal loans

Conventional personal loans can be either secured or unsecured. A secured loan requires you to provide something valuable (also known as collateral) like your car, savings account or home to back (or secure) the loan. Lenders can repossess the collateral if you fall behind on payments or default. This makes them less risky for lenders, which also means they come with more favorable terms, such as lower interest rates and lower qualification requirements.

On the other hand, unsecured loans are the more common of the two and require no collateral. Because these loans do not require collateral and therefore pose more risk to lenders, they usually come with higher qualification requirements and higher interest rates. The loans in this list are all unsecured personal loans.

Student loans for bad credit

If you’re trying to cover higher education costs, student loans for bad credit are likely the direction you’ll want to look. Although private student loans usually require good credit, borrowers with bad credit can take out federal student loans, which do not require a credit check. Federal loans also come with the most flexible repayment terms, including forgiveness if you work in public service or choose certain repayment plans.

Auto Loans For Bad Credit

An auto loan is a secured loan that uses your car as collateral, which means the lender can repossess your car if you fall behind on payments or default.

Auto Loans For Bad Credit

As with personal loans, auto loan qualification requirements vary for each lender and dealership. While we recommend a minimum credit score of 670 to receive the most favorable terms, as long as you meet debt-to-income (DTI) requirements and have a large down payment, you may qualify for an auto loan with a lower score. can

Payday Loans For Bad Credit

Payday loans are short-term, small-dollar loans (usually up to $500) that you pay back once you get your next paycheck, usually two to four weeks after you take out the loan. Many lenders do not require a credit check, which is often tempting for people with bad credit. However, don’t get your hopes up. Payday loans come with their own risks and exorbitant fees. Consider other options first, such as personal loans or borrowing money from friends and family.

Home Equity Loans and HELOCs for Bad Credit

If you have enough equity in your home—the current market value of your home minus your remaining mortgage balance—you may be able to get a home equity loan or home equity line of credit (HELOC). Both let you draw against your home, which means your home secures the transaction and the lender can repossess it if you fail to make payments. However, home equity loans are disbursed as a lump sum while HELOCs limit you to withdrawing funds on an as-needed basis.

But borrowers with bad credit scores are unlikely to qualify for these loans. Most traditional lenders require minimum scores between 600 and 620. There may be a specific lender or credit union that will make an exception, but this is not common. Those with scores below 600 will have to go through hard money lenders such as private investors or companies, not banks. While a hard money lender is more flexible, it is usually a more expensive route.

How to spot bad credit loan scams

Scammers are more likely to target borrowers with bad credit because they know they have limited options. That’s why it’s important to protect yourself.

Here are some warning signs of a loan scam:

  • You need to pay the fee before getting the loan
  • “No credit check!” Ads for or “Bad Credit is OK!”
  • Unsolicited phone calls from someone offering you a loan
  • Fees are unknown before you apply
  • Lack of reviews available online or reviews that appear staged or fake
  • The lender is unable to show you their license

Names or correspondence with grammatical errors or copied logos such as “Wells-Fargo” or “WellsFargo” instead of the actual bank “Wells Fargo”


We reviewed 18 popular lenders based on 14 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose lenders that have a minimum credit score requirement of 600 or lower and ranked them based on the weighting assigned to each category:

  • Loan details: 20%
  • Loan cost: 25%
  • Eligibility and accessibility: 30%
  • Customer experience: 15%
  • Application process: 10%

Within each category, we also considered several characteristics, including loan amounts, repayment terms, APR ranges and applicable fees. We also looked at whether each lender accepts co-signers or joint applications and the geographic availability of the lender. Finally, we evaluated each provider’s customer support tools, borrower perks and features that simplify the borrowing process—like prequalification and mobile apps.


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