Interest Rates: Which Loans are Best for Those with Less Than Stellar Credit?

Trying to get a loan with a bad credit score is as challenging as it gets, but it’s definitely not impossible. While a particular lender’s set of criteria might be a bit more lenient compared to some of the others, persistence alone won’t make a difference unless you also take some time to examine what’s out there and determine the best course of action while laying out a plan to stick to.

For this purpose, we’ve developed a comprehensive list of options you should consider if you’re looking for a bad credit loan:

  1. P2P lending

Peer to peer lending (or P2P lending for short) is a relatively new thing on the market. Originating somewhere in 2005, it’s a platform that allows you to borrow money from an individual rather than a financial institution.

In a nutshell, it works like this: potential borrowers post the amount they want to borrow and describe their cause, then investors can choose who they’re going to be funding among the many listings.

Don’t make the mistake of thinking that your credit score is no longer a factor with P2P lending (it is), but in general, these types of loans are much more easily attainable compared to the conventional lending options. In addition, the interest rates are much more favorable.

  1. Secured loans

Speaking of conventional loans, not all of them are out of the question if you’re unfortunate enough to have a bad credit score. Secured loans are a fine example of this. In fact, if you want to get a loan the traditional way, going after a secured loan is your best shot to get approved.

The reason why more lenders are willing to overlook your bad credit score is that these are always backed by a valuable asset that you own. Whether it be your car, your house, or even stocks in some cases, if you’re unable to pay them back in time, the lender can simply seize your assets as one of their own.

All in all, secured loans have lower interest rates than unsecured loans (which are next to impossible to get approved for with a bad credit score), and they’re perfect if you need access to a larger sum of money. And guess what? If you pay them back in time, your credit score is going to receive a huge boost.

Of course, secured loans are no laughing matter; you must be prepared to lose your valuable asset if things go wrong, which is what is going to happen if you can’t make your payments on time. Therefore, only go for them if you have a stable source of income. You can also visit a valuable resource like where you’ll be able to compare the most popular lenders, allowing you to pick the one with the most favorable terms.


  1. Online personal loans

The advances in technology have brought about several personal loan lenders, another great option for people troubled with having a low credit score.

Since you can access their services online, there’s no need to schedule a visit with a bank representative or having to go through lengthy and complex approval procedures and interviews. They’re known for how fast they are when processing requests, which means you could potentially have the money sitting in your bank account within a few hours (or at least a day).

Sure enough, there are some formal procedures and forms to fill out, but they’re not nearly as demanding as what you’re probably used to seeing. Even though your credit score still has some weight on the overall decision, not that much weight is placed on it (comparatively speaking).

You can take advantage of the fact that each single lender follows an internal set of rules; some look at your achievements, some will check your level of education, but sometimes, they’ll go with their gut. Therefore, if you can present a convincing argument why they should entrust you with the money, you’re in a good position to get approved.

  1. Get a co-signer

While not exactly a type of loan all in of itself, it needs to be mentioned because it’s something that will unlock some other possibilities that are generally inaccessible to those unfortunate enough of having a bad credit score.

The basic idea is to find someone with a good credit score (typically, a relative or a close friend) who is willing to vouch for you and take responsibility if you’re unable to pay it back on time.

If you go with this option, please keep in mind that it’s their credit score which the lending terms will be based on, not yours. In this case – since their credit score is better – it ends up working to your advantage.

Getting a co-signer can complicate things a bit, however; the way you handle your payments will be recorded in both of your credit reports. Even if you’re late on your payments, your co-signer’s credit score will be impacted in a negative way, so think twice before laying this kind of burden on someone’s shoulders. On a positive note, if you keep making your payments on time, your credit score will improve as a result.

  1. Visit a credit union

If you’re used to dealing with traditional lenders, you’ll find yourself right at home. There is, of course, a slight difference: credit unions are nonprofit institutions. They pass on their earnings not in the form of monetary rewards, but rather by rewarding their members with lower fees, better customer service, etc.

Now, here is where it gets interesting for someone with a bad credit score; often, you will find that they make judgment calls based on your character and whether they like you or not on a personal level. Understandably, this may not be ideal, but it’s a whole lot better than basing their judgment on your credit score alone. Here’s how you should look at it… is it not better to be given a second consideration, rather than being flat out denied just because your credit score looks bad?

There’s another thing that works in your favor; most of credit unions are actively looking for borrowers. If you find their terms to be at least somewhat sensible, you’ll find plenty of opportunities to find a lender who’s going to be willing to work with you.

The more of a moving personal story you can come up with (as long as it’s believable), the more convincing you’re going to end up being, and thus, increase your chances of approval.

  1. Borrow from a family member

Borrowing money from a family member is much less stressful, given your interpersonal relationships are in a good standing and that you’re able to trust each other. In certain cases, you can even receive a financial boost for free without them ever expecting to be repaid.

In any case, make sure these terms and expectations are clearly laid out in advance so there won’t be any disagreements later on. An internal family disagreement can have even more dramatic consequences than a bad credit score. One can be rebuilt eventually, but broken trust is a type of scar that hardly ever gets to heal.

A good principle to keep in mind so to treat your family members just as you would treat one of your business partners. Some may not agree, but if you can keep the agreement beyond verbal promises and sign some form of a contract, it’s going to keep you much more sane. Make sure to include what happens should one party not be able to fulfill their part of the deal.

A quick word on building your credit and managing your finances

Even though it’s hard to raise one’s credit score if it’s on the lower end, it’s still possible. However, it’s not a step-by-step procedure; rather, you should treat it as re-framing how you treat your finances on the grand scale of things. By slowly adopting the guidelines we’ll touch upon in a bit and making them a part of your life, your credit score will see a considerable amount of improvement in a completely natural manner.

The first thing you need to do is to think about how you can live within your means. A good credit score reflects how you live your life and how well you can control your emotions and avoid buying things on impulse. Sometimes, avoiding a spending spree that serves nothing more than to temporary appease your burning emotions is more than enough.

Finally, think about working on your discipline and becoming a more trustworthy and reliable person and/or business partner. If you manage to not live beyond your means, you’ll find that paying your bills on time will become much easier as a result, since you’ll have the necessary funds to make these payments. You’ve probably already guessed how much of a positive impact this will end up having on your credit score.


By being aware of the options we’ve discussed, you’ll always be able to stay reassured that bad credit is not the end of the line, but only a temporary obstacle you can surpass. So study these in detail, make sure to read plenty of lender reviews online, and your financial goals should soon be within your reach once again.