There are lenders that offer personal loans for borrowers with bad credit. However, those with the lowest scores may not qualify and could be required to provide collateral or a co-signer.

To improve your chances of approval, check your credit report for errors and pay down existing debts. It’s also a good idea to pre-qualify for a loan, which doesn’t impact your score.

Interest Rate

Most lenders require a credit score in the mid-600s or higher to qualify for a personal loan with a good interest rate. If your score is below that mark, you can still get a loan if your other financial circumstances improve. This may include paying off outstanding debts, taking a pay cut or getting a side hustle to earn extra income. You can also find alternatives to personal loans such as payment plans with medical and utility providers, cash advance apps or family loans.

If you have bad credit, it’s a good idea to check multiple lenders to compare rates and terms for a loan. A loan with a low credit score is riskier for lenders, so they charge higher interest rates to make up for the risk. Bankrate’s best picks for bad credit loans have competitive rates and offer flexible terms and repayment schedules. These lenders have a variety of minimum credit requirements and provide different loan amounts based on your needs. Some offer an online application, such as Upgrade, while others have physical branches, such as OneMain Financial.

NerdWallet’s personal loans team conducts extensive research and testing to recommend top-rated lenders. These lenders offer unsecured personal loans to borrowers with credit scores from about 550 to 640. Borrowers with the lowest scores may need to bolster their applications by offering collateral, adding a co-signer or securing the loan with another source of income.

1. Your credit score

When applying for a personal loan, lenders look at your credit report to see how you’ve handled debt in the past. This is called a hard credit inquiry and can slightly (but temporarily) lower your credit score when you first apply.

Lenders use your credit report to determine how much you can borrow, based on your credit history and current debt-to-income ratio. They’ll also consider any recent delinquencies, foreclosures, repossessions or bankruptcies on your record.

Having bad credit typically doesn’t disqualify you from getting a personal loan, but your application may be subject to a higher interest rate since you represent more risk to the lender. You may also be required to provide more documentation than a typical applicant, such as pay stubs or tax returns. Beware of lenders that ask you to pay advance fees for personal loans with bad credit — these fees are deducted from your loan funds. These types of lenders are usually considered predatory and should be avoided.

2. Your income

If you hippo loan have bad credit, your application will face a higher level of scrutiny than it would otherwise. Lenders will want reassurance that you have the ability to pay back your debt. This can be done by looking at your income and employment status. You should be prepared to provide proof of these details, such as pay stubs or tax returns.

While it’s possible to get a personal loan with bad credit, you will likely have to accept a higher interest rate than you would with a good score. If you’re not sure if you’ll qualify, consider pre-qualifying with multiple lenders to see what offers are available without impacting your credit.

Another option is to seek out secured loans, such as a home equity loan or car loan. These are easier to obtain than unsecured loans, such as credit cards or payday loans. Secured loans require collateral like a savings account or savings vehicle, which the lender can take possession of if you fail to repay.

3. Your debt-to-income ratio

Your debt-to-income ratio (DTI) is a key factor that lenders consider when assessing your eligibility for loans and credit. It measures how much of your monthly income is going toward debt payments, including mortgages or rent, auto loans, student loans and credit card balances.

Lenders will often restrict your loan options if your DTI is too high. This may include limiting your eligibility for mortgages or requiring higher down payments. They also might assign more restrictive terms like higher interest rates, steeper penalties for missed or late payments and stricter repayment terms.

To calculate your DTI, add up all of your monthly debt payments, then divide them by your gross monthly income (before taxes). This number should be less than 50% to qualify for most loans. If it’s more than that, you have too much debt and should focus on reducing your expenses through credit counseling or debt consolidation. This will improve your DTI and boost your credit score, which can then increase your borrowing eligibility.

4. Your collateral

The ability to secure a loan with collateral depends on your lender, type of debt and state laws. Typically, your home, car or savings account is used as collateral for secured loans. In the event you fail to make your required payments, your lender may have the right to seize and sell your property. You can protect against this by making your payments on time and never missing them. Avoid lenders that require upfront fees before approving you for a personal loan, as these are often predatory. Instead, choose a reputable lender that deducts fees directly from your loan proceeds. If you are unsure whether or not a personal loan is the right option for you, consider getting a cosigner or using a prepaid card to build your credit history.