What are the Best Bad Credit Loans?

Obtaining a new credit with a bad credit record can be very challenging. Most lenders are usually very strict with providing loans to individuals with poor credit reports and others will even cancel your application the moment they come across your credit scores without even considering any other factors. This can be very frustrating but you really can’t blame them for that. The good news for you is that several companies are still willing to offer credit to individuals with poor credit scores. The bad news is that not all of these companies are as straightforward as you may think. Some of these lenders may take your poor credit background as an opportunity to extort you with heavy interest rates that you honestly don’t deserve.

Taking loans from such lenders, therefore, puts you at a risk of failing to pay back the loan and this will affect your score even further. In this review, we will be discussing the best bad credit personal loans that come highly recommended. These are loans that will not only help you with tackling your immediate financial problems but will also boost credit score helping you to qualify for much better credits.

Make sure to check our post about the best bad credit credit cards too.

But first, how do you know the right lender to buy from?

Choosing the Best Bad Credit Lender

Consider the following factors before applying for your personal loan:

  • Type of Lender

You can either get your personal loan from a private bank or peer-to-peer marketplace lender. Both of these companies are known to offer loans to individuals with poor credit scores but they all have unique requirements. Private banks, for instance, usually have a lot of very strict demands that most people find unfavorable. They do, however, have well established financial foundations. You must make your research and determine whether such a financial security is worth the stringent requirements the loan comes with.

On the other hand, peer-to-peer marketplace lenders are where approved backers are connected to potential borrowers through online tools. The risk of the loan is hence spread among different investors who make money out of the loan’s interests.

  • Co-signer option

A co-signer is someone you know who can help you secure a loan with better terms by signing up as your insurer. A company that has a co-signer option is a huge plus. They will give you bigger loans with lower rates and much better terms. You must, however, make sure that you pay back the loans on time. Failure to do so will not only damage your credit score but will also have the same impact on your co-signer’s credit report. This can go as far as damaging your personal relationship with the person. Therefore, in as much as the co-signer option is a huge plus, ensure that the person you are using as your assurance is someone you are in good terms with and one who is fully aware of the terms of the loan you are taking.

  • Type of Interest Rates

A lender can either give you a loan with a fixed or variable interest rate. As the names suggest, fixed interest rates remain the same throughout the payment period while variable rates fluctuate over time depending on various factors. Variable interest rates are also tied to an index rate which will determine how much you’ll have to pay. Typically, people with high credit scores are charged fewer interest rates compared to ones with poor credits.

Avoid getting any surprises by ensuring that you are aware of the interest rate attached to the loan. To determine your APR, the lender may also place a soft inquiry on your credit. Don’t worry though because soft inquiries don’t affect credit scores.

  • The Loan Terms

Different lenders attach different terms to their loans. Since most of these companies know that offering credit to individuals with bad credit scores is a big risk, most of the terms are usually very strict. Fortunately, a couple of lenders still offer quite favorable terms that most people can work with. Make sure that you read through the terms keenly. Take note of the loan restrictions, repayment period, APR, etc. before accepting the terms. In case you come across any red flags, avoid the lender because delaying the payment will damage your credit score and may lead to other penalties.

  • Fees & Penalties

Different lenders have different fees and penalties. Some of the most common fees including origination, prepayment, returned check, late, processing and insufficient funds fees.
Origination fees are charged for processing your personal loans. Depending on the lender, these fees may vary from 1% to 6% of the total loan. Other companies provide an option of having the fee included to the interest rate which makes it much easier for you to pay. Other lenders won’t charge you an origination fee, to begin with!

Prepayment fee is a penalty served due to paying your loan early. This fee is meant to offset the interest of the loan. This fee may be as a percentage of the balance or as an interest charge for a specific number of months.
The late fee as you can guess is the penalty for delaying your payments. Most lenders usually provide a grace period of between 10 to 15 days before the fee is charged. This fee varies depending on the lender. While others have a specific amount e.g. $15 or $40, others have this fee expressed as a percentage of your monthly payment e.g. 5% of the monthly loan amount. A few lenders will choose either a specific amount or a percentage of the monthly loan depending on which one is higher than the other. Some lenders don’t charge any late fees.
Make sure that you know all the penalties associated with the personal loan you are taking and the fees attached to each penalty.

  • Repaying Options

Some lenders give their clients the option of choosing and adjusting the due date as they want. This should make your repayment a lot easier to adhere to. The lenders will also offer different repayment options including checks, online payments, and autopay. Some lenders provide discounts to clients repaying using the autopay option. You can, therefore, choose this option and enjoy the discounts. Be careful and avoid letting the discounts get the better of you and choose the method if you know it won’t be convenient for you.

Top 3 Bad Credit Personal Loan Companies

1. Upstart

Upstart is an online peer-to-peer marketplace founded in 2012. This platform was initially meant for graduates but it has undergone significant improvements allowing people with no or short credit history to access personal loans of between $1,000 to $50,000 with improved terms. The loan repayment period also varies from 3 to 5 years depending on the amount borrowed and monthly repayment amount you’ll select.
With upstart, individuals with FICO credit scores as low as 620 can access personal loans. This company has an advanced data science tool that screens through one’s credit score, career, education among other factors to determine their creditworthiness.

The algorithms can, therefore, approve loan applications to individuals with poor credit reports or none at all.
Upstart is also a favorite to a lot of people because of its quick turnaround. Once your application has been approved, the money will be deposited in your account within a few business days or even in the next business day.
If you are going to consider Upstart, you need to know that it requires you to have either a full or part-time job. You must have a regular source of income to qualify for loans from this lender. The company also doesn’t have a co-signer option.

2. Avant

Avant is a Chicago-based company formed back in 2012 with its biggest focus being on people with bad credit. Since its inception, the company has approved over 600,000 loans!
Avant offers personal loans to people with FICO credit scores that are as low as 580. Once, your loan has been approved, the company will transfer the money to your account as soon as the next day provided you have submitted all the relevant documentation.

Avant offers loans from $2000 to $35000. The repayment period ranges from 2 to 5 years and the interest rates are fixed.
The problem with Avant is that people with poor credit will get approved but may end up paying 35% APR for the loans. The company is also not available in all states.

3. LendingPoint

LendingPoint is an online Georgia-based company founded in 2014. This company is focused on providing personal loans to individuals with bad to fair credit not just because they need the money but also to help them rebuild their credit scores. The company, hence, looks beyond your FICO scores when determining your credit-worthiness.
LendingPoint provides loans to people with credit scores of between 580-720. They have so far, provided over $100 million worth of personal loans.
In case you fail to qualify for a personal loan, this lender will provide you with a few credit-builder loan options. This should help you improve your credit score qualifying you to better loans.
LendingPoint charges an origination fee but they also provide an option of including the fee to the interest rates which is more convenient to pay compared to the upfront alternative.

The company offers fixed interest loans.
The limitation with LendingPoint is that they have significantly high-interest rates. Also, there are no any incentives, discounts or co-signer option to lower the rates. To qualify for better loans, you must prove that you’ve been employed in your current position for more than 12 months.