Key Takeaways:

Even with a bad credit score, you still have many options when it comes to financing. This guide will help you find the best bad debt loans available so you can decide which one is right for you.

If you have bad credit, you won’t be able to qualify for most personal loans without the  help of a co-signer. However, there are several lenders that are willing to work with borrowers who have poor credit.

11% of Americans have bad credit with FICO scores of 550 and below. Those falling in this category will have a hard time getting approved for a loan. 

If you are in this category, you know how difficult it is to find a lender who is willing to approve a loan. 

There are many bad debt loans that are specifically designed for those who have less than excellent credit. Know your options so you can get access to funds fast when you need them.

What Are Bad Debt Loans?

Bad debt or bad credit loans are for borrowers with poor credit scores. The financial institutions that offer these loans have flexible underwriting that accommodates those with low scores.

How Much Loan Amount Can You Get?

A FICO score of 300 to 579 is considered poor. Credit scores can vary based on the credit bureau issuing the rating. Like other personal loans, these loans have fixed repayment periods and interest rates. Installments can be paid over a period of up to seven years in most cases. Typically, these are unsecured loans which means that they are not backed by collateral. Lenders offer bad debt loans ranging from $1,000 to up to $50,000. 

Depending on your personal financial situation, your approved loan amount will vary, and your interest rate is likely to be higher when compared to loan offers to those with good credit history.

Application Process

You will need to provide information such as income, social security number, and identification documents to qualify. The loan application process is similar to regular loans. You can prequalify with different lenders to compare the APR range offered by different lenders. The best bad credit loan is one that offers you the lowest APR.

Once you send in your documents and online application, the lender will make a credit inquiry to ensure you meet the eligibility requirements. Loan approval will usually be done on the next business day for personal loans.

The loan agreement will outline the loan terms, such as the origination fee, prepayment penalty, annual percentage rate, late fees, monthly payments, and loan terms. Once you sign the contract, the loan funds will be disbursed to your bank account. You can then set up autopay and repay the loan through consistent loan payments.

How to Know if You Are Eligible for a Bad Debt Loan

Even if you have a low credit score, if your payment history demonstrates that you have resolved the problems, lenders may be willing to work with you. This means that you have resolved bankruptcies, tax liens, and delinquencies.

You should also have enough income to repay your debt comfortably. Lenders will check your debt-to-income ratio in addition to your credit report to determine this. Take a detailed look at your current budget to see if you have any room to comfortably pay the installments on the new loan before you apply.

The reason why you are borrowing money may also determine your eligibility in addition to your credit score. For example, if you are applying for debt consolidation to consolidate all your existing debts, it can help you pay off your debt faster and improve your credit. This will make it more likely for you to get approved, so long as your credit score is within the “good” range, generally between 670-739.

Secured Vs. Unsecured Loans

Bad debt loans may be secured loans or unsecured loans. It’s easier to qualify for secured loans when you have a bad credit profile. With a secured loan, you’ll need collateral like a home, a car, or another asset. If you default, the asset can be seized by the lender. 

Unsecured loans do not require collateral. This means that the lender will check your creditworthiness to determine your ability to pay. Unsecured loans typically have high-interest rates because of their higher risk.  

6 Types of Loans for People with Bad Credit

If you are having trouble getting qualified for regular loans, there are several loan options to choose from for those with bad credit:

1. Secured and Unsecured Personal Loans

Many online lenders offer secured and unsecured personal loans tailored for people with bad credit. Secured bad debt loans tend to offer more favorable terms, such as more lenient qualification requirements and loan rates. But be aware if you take a secured loan, because if you default on that loan they can take away the item secured for that loan, such as a car, home, etc. So be absolutely sure that you can repay this loan and you absolutely "need" this loan before commiting.

Online personal loans usually have flexible minimum credit score requirements and offer same-day approvals and fast funding. Unsecured loans are common and do not require collateral. They typically carry higher interest rates. If you have a family member who is willing to be a co-signer, it gets easier to qualify for the loan and receive a lower interest rate.

Like any other personal loans, these loans can be used for any purpose, such as home improvement, unexpected emergencies, medical bills, and funerals. Both of these are installment loans, so you’ll pay a fixed monthly installment for a set term.

2. Student Loans

Even with bad credit, it’s possible to cover the cost of education through a student loan for bad credit. Many lenders serve students with bad credit or no credit history.

You can also apply for federal student loans that do not require a credit check. Federal student loans are offered by the U.S. Department of Education and offer flexible repayment terms and many features, such as consolidation and forbearance. 

3. Auto Loans

Auto loans are secured against your car. This means that your auto loan provider can repossess your vehicle if you default on your loan or miss payments. The qualification requirements for auto loans vary for each dealership and lender.

Although most providers require good credit scores, you can qualify for a bad debt auto loan even with a low credit score if you can pay a larger down payment and meet the debt-to-income requirements.

4. Payday Loans

The most easily available bad debt loans are payday loans. These are typically smaller, short-term loans that you can repay when you get your next paycheck, typically four weeks after taking the loan.


Most payday loan lenders don’t need a credit check. However, it’s important to know that the fees and interest rates for payday loans can be predatory. While credit card interest rates are averaging around 25% right now, payday loan rates can reach into the hundreds. These interest rates will directly affect your ability to repay the loans, and can cause you to fall into a cycle of debt.

Be wary of scams if you are considering this option. Consider all your other alternatives before choosing this solution.

5. HELCOs and Home Equity Loans

If you are a homeowner who has built enough equity, you may be eligible to get a home equity line of credit (HELOC) or home equity loan. With both of these options, you can borrow funds against the value of your home.

HELOCs and home equity loans are secured so your lender can pursue foreclosure if you fail to repay your loan. With a HELOC, you can withdraw funds as needed. With home equity loans, the loan amount will be disbursed as a lump sum fund.

Although it is uncommon to qualify for either of these loans with a poor credit score, some private lenders may be willing to work with you. This will typically be more expensive when compared to working with a bank or credit union.

6. Debt Consolidation Loan

Even with a bad credit score, it is possible to get a debt consolidation loan. The interest rates can be higher, so it is important to pay attention to the repayment terms. Ensure that the APR offered is not higher than what you’re currently paying on your credit card debt.

If you are unable to find a consolidation loan at a lower rate, consider other options. Look into enrolling in a debt management plan instead. This option doesn’t require taking out a loan, so you may be eligible even with bad credit.  

Getting a loan when you have bad credit can be challenging, but it isn’t impossible. You may also want to look into debt relief options to tackle your existing debt first. 

TurboDebt is an experienced and reputed debt relief company. Our knowledgeable debt relief professionals can provide consultations, advising, and strategic planning services to help you find the right debt solution for your financial situation.

Get in touch with us today for a free consultation. See why thousands of satisfied clients recommend our debt relief services.