Key takeaways
- Choose the best bad credit loan based on the terms you qualify for, paying special attention to any origination fees or other charges that could increase the cost.
- An extended loan term could give you an affordable monthly payment, but you’ll spend far more on interest.
- Get prequalified with at least three of the best lenders for bad credit and compare bad credit loans to find the best fit.
Bad credit loans have high interest rates because borrowers with bad credit typically are at a higher risk of default. It can be difficult to find a lender that will work with a low credit score, which is why it is important to shop around to find the most competitive bad credit loan rates. Opting for a lender that offers a competitive interest rate, affordable monthly payments and limited fees will help you save money when you’re trying to choose the best bad credit loan company.
5 steps to choose the best bad credit loan company
Regardless of your credit score, choosing a lender requires some forethought. Once you determine the type of loan you need, research your loan options and individual lenders thoroughly. Take into account customer reviews, interest rates and terms. From there, you can prequalify with most lenders to preview your rate and prevent a hard pull on your credit.
1. Determine what loan terms best fit your needs
Personal loans typically come with repayment terms from two to seven years, though some lenders may offer shorter or longer terms. It can be tempting to opt for a loan with a long term to get a lower monthly payment, especially when faced with a high annual percentage rate (APR). But stick with the shortest term you can reasonably afford to cut down on the total interest you pay.
For example, consider a bad credit loan of $5,000 with an APR of 29 percent. A longer term means a lower monthly payment, but the interest you pay could be thousands more.
| Loan term | Monthly payment | Total interest |
| 2 years | $277 | $1,647.92 |
| 3 years | $210 | $2,543.03 |
| 4 years | $177 | $3,502.41 |
| 5 years | $159 | $4,522.56 |
A personal loan calculator can help you calculate the difference in monthly payments and interest to better understand what fits into your budget.
2. Read customer reviews
The lender should offer customer support by phone, online or, in some cases, at a branch. Check to see if representatives are available at times that work for your schedule. It is also vital that the application experience is seamless, and the lender allows you to manage your loan online.
You should also check online reviews to get a feel for the level of service each lender offers. It’s not abnormal to see a few negative reviews here and there, but keep an eye out for trends in complaints and how the lender responds to them.
3. Consider lender reputation and fine print
Doing business with the right lender is vital to avoid headaches and protect your finances. Google, Trustpilot and the Better Business Bureau (BBB) are ideal places to start when you want to get a feel for the lender and determine if it is reputable. Beyond customer reviews, check how long the company has operated, where it’s licensed and where its headquarters is located.
It’s equally important to read the fine print and ask the lender any questions you may have before moving forward. Pay attention to the specifics of the loan agreement, including the interest rate, repayment schedule, applicable fees and the total borrowing cost. That way, you’ll know what to expect if you decide to take out a loan.
4. Identify any useful perks
Beyond providing a seamless lending experience and rapid funding, some bad credit lenders offer other perks to help improve your overall financial health. For example, you may be able to check your credit score for free directly from the online dashboard. Some lenders also feature an assortment of financial tools, including calculators and educational articles, to provide the information needed to make sound financial decisions moving forward.
5. Prequalify with three or more lenders
Once you know your desired loan amount, compare rates and terms from at least three of the best lenders for bad credit. Be sure to select lenders that allow you to prequalify online so you can preview the rates and terms you could receive after submitting a formal application.
The steps to prequalify are fairly simple, and doing so won’t hurt your credit score since it only requires a soft credit inquiry. To complete the prequalification process, you’ll likely be asked to provide your contact information, Social Security number, income information and employer’s name and phone number. Keep in mind that a prequalification doesn’t guarantee approval.
What to do after you choose a lender
When you’re ready to apply, gather the financial documents the lender will need to make a decision on your loan application. This includes your personal contact information, proof of income and proof of address. Also, prepare for a hard credit inquiry if the lender does not offer prequalification.
If you are approved, review the loan agreement and ask any questions you may have before signing the documents. The final step is to receive your loan proceeds, typically via electronic deposit. Funds may be available as soon as one business day after approval, although most lenders will take a few days to process and transfer your funds.
Bottom line
Before you can determine which loan company is best for bad credit, you need to consider your unique financial situation. Before you apply, compare bad credit loan rates, terms and fees from at least three lenders to find the option that best matches your needs and budget.
And, if you can, hold off until you boost your credit. Graduating to fair credit loan rates may net you a lower monthly and overall cost.
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