Loans for Veterans With Bad Credit: A Guide
9 MIN READ
Published December 22, 2023 | Updated January 23, 2024
Military families often face situations that make them vulnerable to financial difficulties. Relocations and deployments put a strain on military members, and finding work for spouses and arranging childcare may be difficult.
If you have imperfect credit and are having a difficult time qualifying for loans, you should consider loans for veterans with bad credit. However, there are some risks of getting these loans, such as the higher cost of borrowing. Consider these risks carefully and weigh your loan options before taking on any new loans for veterans.
Can Veterans Get a Loan with Bad Credit?
Some lenders specifically market their products to military members with bad credit. While each lender has their own definition of what they consider bad credit, credit scores of 579 and lower are usually considered “poor” credit by FICO, the developer of the most widely accepted credit scoring method used by lenders today. It may be difficult to get approved for most conventional loans and credit cards with that credit profile.
The good news is a lower credit score doesn’t prevent you from getting a loan. There are many online lenders that cater to borrowers with less-than-perfect credit profiles. However, you’ll likely pay a higher interest rate, pay some additional fees, and/or get a lower loan amount than you would if you had a higher credit score.
“It’s always best to check with your local VA office to find out if you can qualify for any veterans’ support programs that may provide a short-term grant or low/no-interest loan to help you with unexpected expenses,” explains Brad Reichert, a financial expert, and the founder and managing director of Reichert Asset Management LLC. “Otherwise, you may want to ask the VA staff if they recommend a particular veteran-friendly lender or two in the area,” Reichert adds.
What You Need To Be Eligible
The eligibility requirements for loans for veterans with bad credit vary based on the lender and type of loan you’re applying for. However, in most cases, the lender will look at other factors to determine your ability to repay the loan, such as your income, your financial assets, your employment stability and housing history, the length of your relationship with the lender, and other debt obligations.
If you have a stable source of income, meet the lender’s income requirements, and have a low debt-to-income ratio, you may be able to qualify for the loan, even with a lower credit score.
How To Improve Your Credit Score
While you may be able to get loans even with bad credit, the high interest rates and fees can make your total loan cost considerably more expensive. You may be able to get access to better terms and rates with a better credit profile, so it’s always good practice to focus on improving your credit score as best you can before applying.
Here are a few tips to consider to improve your credit score:
- Check your credit reports from all three credit bureaus regularly.
- Check for inaccuracies in your credit history and dispute them.
- Pay all your bills on time, even the smaller ones.
- Pay down your balance(s) on your credit card(s) and your other revolving line(s) of credit to improve your credit utilization ratio.
- Do not max out your credit cards.
- Use credit cards responsibly and only borrow money if you really need it.
Types of Loans Available for Veterans with Bad Credit
There are several different types of loans for veterans with bad credit that you can borrow for different needs, such as paying for an unexpected expense, buying a car, purchasing a home, or financing business needs.
VA home loans are specifically designed for active-duty military personnel and veterans who want to purchase a new home or refinance their existing conventional or VA home loan. One of the main benefits of a VA home loan is that the lending requirements are quite lenient compared to traditional mortgages.
Although most lenders have a minimum score requirement of 620, you may be able to qualify with a credit score as low as 500. Of course, you'll still need to meet other credit, financial, and income requirements in order to qualify for the loan.
Even if you have bad credit, there are several car financing options available to you. You can reach out to a variety of lenders specializing in bad credit car loans. It may be difficult to qualify for car loans with the major banks and larger credit unions, but you may be able to get a loan with an online lender or at car dealerships that provide their own financing if you offer a larger down payment.
If you need funds to cover unexpected expenses related to car repairs, home improvements, or medical emergencies, an unsecured personal loan is a good choice. You can repay the loan in fixed monthly installments over a predetermined term, so you’ll know what your payment will be on every due date. However, personal loans for bad credit may have interest rates as high as 36%, making them the most expensive method of borrowing, next to payday loans.
The average interest rate for unsecured personal loans is 15.32% if you have very good to excellent credit. While you’ll end up paying a lot more in interest charges due to your credit profile, it can provide you quick access to cash when you really need it.
Small Business Loans
If you’re a small business owner, you can also get business loans for veterans with bad credit. A few business lenders have no minimum credit score requirements and may instead focus on other factors like your cash flow. Online lenders also provide faster funding and easier approvals.
You may consider applying for microloans from nonprofits or those participating in the SBA microloan program. Another option is to check if you qualify for funding from a community development financial institution that serves underserved or low-income communities.
How To Choose the Best Loans for Veterans
Whether you’re considering personal loans, auto loans, or home loans, it’s important to consider a few things to ensure you’re getting the best possible rates for your credit profile and the lender you choose is reputable. Here are a few factors to consider:
- Research lenders that cater specifically to borrowers with lower credit scores. You’re more likely to get approved if you apply with those lenders.
- Read the online reviews of the lenders you plan to work with to ensure they are reputable and trustworthy.
- Compare the annual percentage rate (APR) offered by multiple lenders. The APR is a standardized method of comparing similar types of loans according to their total effective cost of borrowing. The APR includes the interest rate as well as any applicable fees, such as prepayment, document preparation and filing fees, as well as origination fees.
- Use a loan calculator to estimate your monthly payments to ensure you can afford them.
- Check if the lender offers any special perks that may be helpful, such as free credit reports or rate discounts for veterans.
- Check the repayment term to ensure it aligns with your needs. A longer repayment term means your installments will be lower, but you’ll pay more in interest and fees over the life of the loan.
Where To Get a Loan With Bad Credit
If you’re a veteran with a lower credit score, you have many more options than you may think when it comes to borrowing. We recommend checking to see if there are any financial assistance programs or grants that are available to you first, such as through disabled veteran debt forgiveness.
If you’re still considering a loan, below are our recommendations on lenders for each type of loan. We picked the top lenders in each category based on ease of qualification, loan amounts offered, customer service, and interest rates.
Upstart is an online lender that looks at other factors, such as employment and education, to evaluate borrowers for personal loans. It offers loans of $1,000 to $50,000 with no minimum credit score requirements. Interest rates range from 6.40% to 35.99%.
myAutoloan is a loan aggregator that makes it easier to find auto loan offers for your credit profile. It will get you competing bids from different lenders so you can compare your loan offers, even if you have a lower credit score.
The minimum automobile loan amount is $5,000, and interest rates start at 4.99%.
Rocket Mortgage offers several types of mortgages, including VA, FHA, and conventional loans with flexible qualification requirements. While you’ll need a credit score of at least 620 for a conventional home loan, you may qualify for VA and FHA loans with a credit score of 580.
Rocket Mortgage also allows you to apply with a co-signer if you have a low credit score or participate in the Fresh Start Program to improve your credit score.
OnDeck offers short-term loans of up to $250,000 with repayment terms of up to 24 months. It also offers lines of credit with limits of up to $100,000 and terms of 12, 18, or 24 months. OnDeck offers same-day funding and quick application, so it’s a good choice for businesses that need quick access to funds.
You’ll need a credit score of at least 625 to qualify for small business loans. Because they are unsecured loans and often issued to higher-risk borrowers, the estimated APR for these kinds of loans is typically around 35.40% on average.
We also recommend trying to improve your credit score, if you’re able to before you start the loan application process. This will boost your chances of getting more favorable loan terms and lower interest rates. Keep credit card balances low and make on-time payments to improve your credit score over time.