If your credit is bad, you can still borrow. The question is what it’ll cost you, and some of the loans aimed at people with bad credit cost so much they make the problem worse.
Here’s the short version. A small loan from a credit union is usually the cheapest option you’ll find. Payday loans and car title loans are the ones to stay away from.
The short answer
- Cheapest small loan: a payday alternative loan (PAL) from a federal credit union, capped at 28% APR.
- Online personal loans for bad credit exist, but compare the APR and total cost before you sign anything.
- Avoid payday loans (a typical fee works out to almost 400% APR) and car title loans (one in five borrowers in a CFPB study lost their car).
- Never pay an upfront fee to “guarantee” a loan. That’s a scam.
- If defaulted student loans wrecked your credit, getting them out of default can do more for you than a new loan.
Your options, from safest to riskiest
| Option | How it works | Main risk |
|---|---|---|
| Credit union PAL | Small loan from a federal credit union, repaid over months | You need to be a member, usually for at least a month |
| Secured card or credit builder loan | Builds credit rather than getting you cash now | Doesn’t help with a bill due this week |
| Personal loan for bad credit | Online lender or credit union, fixed monthly payments | High APR, and a missed payment hurts your credit again |
| Bad credit car loan | Dealer or lender financing for a car you’re buying | High rate on a big balance |
| Payday loan | Small loan due on your next payday | Fees that work out to triple-digit APRs |
| Car title loan | Your paid-off car is the collateral | You can lose your car |
1. Payday alternative loans from credit unions
Federal credit unions can make payday alternative loans, or PALs. They’re small, they’re capped, and they’re built to replace the payday loan you were about to take.
Here’s what the rules allow:
- Loans from $200 to $1,000
- Repaid over 1 to 6 months
- An application fee of no more than $20, only to cover the credit union’s actual cost
- A maximum APR of 28%
- Up to three PALs in six months for the same borrower, with no overlapping and no rollovers
The catch is that you usually need to have been a member of the credit union for at least a month. So if you think you’ll need one, join a credit union now, before you’re in a pinch.
2. Build credit instead of borrowing
If nothing’s due this week, the smarter move may be to fix the score first, then borrow at a better rate later. The CFPB points to a few ways to do that:
- A secured credit card, where you put down a cash deposit (say $500) and can spend up to that amount
- A credit builder loan from a bank or credit union, where your payments build credit and savings at the same time, and you get the money once it’s paid off
- Paying every bill on time, every time
Check your own credit reports too. You can get them from all three bureaus for free every week at AnnualCreditReport.com.
3. Personal loans for bad credit
Some online lenders and credit unions make personal loans to people with lower scores. You get the money in one lump sum and pay it back in fixed monthly payments.
Rates for bad credit are high, and they vary a lot from one lender to the next. Compare the APR and the total you’ll pay back, not just the monthly payment. Ask whether checking your rate is a soft or a hard credit pull before you apply, and walk away from any lender that wants money before you have a written loan offer.
4. Bad credit car loans
If you need a car, plenty of dealers will finance you with bad credit. Some “buy here, pay here” dealers lend the money themselves, in-house.
Get a quote from a credit union or bank before you walk in, so you know what a fair rate looks like for you. And look at the total cost of the loan, because a high rate on a big balance adds up fast over the life of the loan.
Loans to avoid: payday and title loans
These two are easy to get with bad credit, and that’s exactly the problem.
Payday loans
The CFPB describes a payday loan as a short-term, high-cost loan, generally for $500 or less, that’s typically due on your next payday, two to four weeks out. Many states cap the fee somewhere around $10 to $30 for every $100 you borrow.
That sounds small. It isn’t. A $15 fee on $100 for two weeks works out to an APR of almost 400%, when credit card APRs generally run about 12% to 30%.
Car title loans
A title loan uses your car as collateral. In a CFPB study of single-payment title loans, one in five borrowers had their vehicle seized. More than four in five of those loans were renewed on the day they were due, instead of being paid off, and the typical loan was about $700 at an APR of about 300%.
If your car is how you get to work, losing it costs you a lot more than the loan.
Red flags for a loan scam
The FTC says no legitimate lender will ask you to pay for a promise. Walk away from any “guaranteed” loan, any fee for “insurance” or “processing” before you get the money, and any lender that isn’t registered in your state.
When student loans are why your credit is bad
For a lot of student loan borrowers, the bad credit traces back to federal student loans that went into default. If that’s you, a new loan doesn’t fix anything. Getting out of default does more.
Loan rehabilitation means making 9 voluntary, on-time monthly payments within 10 months, and the payment can be as low as $5 depending on your income. When you finish, the default record comes off your credit report, though the late payments reported before the default stay.
Consolidation is the other way out. It’s faster, but the default record stays on your credit history. Our guide to getting out of student loan default walks through both, step by step.
From studentaid.gov
Wage garnishment and Treasury offset on defaulted federal student loans are currently paused, but defaults are still reported to the credit bureaus. A pause on collections doesn’t fix your credit.
Behind but not in default yet? A lower payment on an income-driven plan can keep things from getting there. Start with our guide to student loan repayment plans, and see how to improve your credit score for the habits that move a score.
Next stepNeed cash without borrowing? Our side hustle ideas are a cheaper fix than any bad credit loan.
Bad credit loan questions
Payday and car title loans are the easiest to get, and they’re also the most expensive. A payday alternative loan from a federal credit union is usually the safest small loan, with a 28% APR cap, but you typically need to be a member for at least a month first.
The CFPB says a fee of $15 for every $100 borrowed on a two-week loan works out to an APR of almost 400%. Many states cap payday fees somewhere around $10 to $30 per $100.
No legitimate lender will guarantee a loan before reviewing your application. The FTC says an upfront fee to secure a loan is a cue to walk away.
Yes, if you rehabilitate. After 9 on-time monthly payments within 10 months, the default record is removed from your credit report, though earlier late payments stay. Consolidation also ends the default, but the default record stays on your credit history.
Sources (9)
We use primary sources wherever we can: Federal Student Aid, the U.S. Department of Education, the IRS, federal regulations and each company’s own site.
- MyCreditUnion.gov (NCUA). Payday alternative loans. mycreditunion.gov. Accessed October 22, 2026.
- Consumer Financial Protection Bureau. What is a payday loan?. consumerfinance.gov. Accessed October 22, 2026.
- Consumer Financial Protection Bureau. CFPB finds one-in-five auto title loan borrowers have vehicle seized for failing to repay debt. consumerfinance.gov. Accessed October 22, 2026.
- Consumer Financial Protection Bureau. What are some ways to start or rebuild a good credit history?. consumerfinance.gov. Accessed October 22, 2026.
- Consumer Financial Protection Bureau. Auto loan key terms. consumerfinance.gov. Accessed October 22, 2026.
- Federal Trade Commission. What to know about advance-fee loans. consumer.ftc.gov. Accessed October 22, 2026.
- Federal Trade Commission. Free credit reports. consumer.ftc.gov. Accessed October 22, 2026.
- Federal Student Aid. Getting out of default. studentaid.gov. Accessed October 22, 2026.
- Federal Student Aid. Collections on defaulted loans. studentaid.gov. Accessed October 22, 2026.
