How to Get a Small Loan with Bad Credit

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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When you have bad credit, every unplanned expense can seem insurmountable. Your pet needs emergency surgery, you need to replace a broken window in your home, and you must pay impound fees after your car gets towed. But how can you get a small loan with bad credit? Fortunately, some lenders understand that you are more than your credit score. Read on to discover how to get the financial assistance you need when you need it.

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Determining If You Have Bad Credit

It’s not hard to determine if you have bad credit. One look at your credit score, and you will know if your credit score is bad. A credit score ranges from 300 to 850, a low credit score is one that falls below 580 on that scale. It’s just normal for your credit score to fluctuate, and it’s also normal for your credit score to vary among the three credit bureaus that analyze your score. Your personal credit score is readily available online, and you will not need to pay to get it. In fact, if you are asked to pay for your credit score, don’t. Rather, search online for another free option.

How Bad Credit Can Affect Your Loan Application

There are many ways bad credit can affect your loan application, not the least of which is being rejected for a loan. So resist the urge to settle for bad loan options like payday loans and learn what to look out for to ensure you’re borrowing a loan you can handle paying back

Higher Interest Rates and Fees

Higher interest rates and fees are a fact of life if you have bad credit. Of course, that’s only if you get approved in the first place. But if you already have maxed-out credit cards, you are probably paying high-interest rates already, and fees could be mounting if you have missed monthly payments or made late payments on your credit card bill.

Smaller Loan Amounts

You might be in luck even with bad credit if you want smaller loan amounts. Some lenders will reduce their risk by loaning you smaller amounts. That way, if you default on the loan, the lender is not out a lot of money. 

Unfavorable Terms

With bad credit, you can expect unfavorable terms on any loan you can get. That means higher interest rates and repayment terms force you to pay back the money quickly. In addition, credit card companies may not reject your application, but they will charge higher interest rates and likely will be ready to pounce with late fees and other penalties if your payment is late. Therefore, you will need to improve your poor credit if you want the lowest interest rates.

Fewer Loan Options

If you have bad credit, you will have fewer loan options. Banks and traditional financial institutions will turn you down for bank loans or, at the very least, not offer the lowest rates. Likewise, you may not be able to get a car loan unless you’re willing to pay an extremely high-interest rate.

Lenders May Require Collateral

Getting a loan with bad credit could mean lenders may require collateral. That’s an asset you already own that you can offer as a guarantee that you will pay back the loan. Collateral such as vehicles, real estate, valuable jewelry, collectibles or other property will be seized by the lender if you don’t make monthly payments on the loan. The main difference between a secured loan and an unsecured personal loan is that the unsecured loan does not require collateral, and the secured loan does require collateral.

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Steps To Qualify for a Loan with Bad Credit

Where there’s a will, there’s a way. Bad credit is not forever, but it will require effort on your part to improve your credit to “fair” or even “good” as rated by the credit agencies. Meanwhile, you can qualify for a loan with bad credit, but it’s a lot of work.

Manage Your Credit Reports and Score

Being a responsible consumer begins when you check your credit. Your credit score is not set in stone; rather, it’s a dynamic number that changes over time. You can take steps to improve your low credit score by paying attention to your credit history. But a word of caution: be patient because it can take time for your efforts to be rewarded with an improved score. Get a copy of your credit report from one or all of the credit bureaus: Experian, Equifax and TransUnion. It’s worth noting that your credit score will not appear on your credit report, but other important information is there.

Check your credit report for common errors. Are your name and address correct? Have you closed accounts that still appear to be open on the report? Is there a bankruptcy judgment from years ago that should be removed? Is an incorrect credit limit listed, or is the same debt listed more than once? If you see errors, go to the credit bureau’s website and follow their instructions for reporting them. Of course, you are responsible for defaults, late monthly payments and more that affect your credit score. Make every effort to boost your score by paying bills on time and resisting the urge to apply for more credit cards because those credit inquiries have a negative effect.

Compare Loans and Lenders

You can compare loans and lenders to find the right fit for your financing needs, even if you have poor credit. Traditional banks, credit unions and financial institutions may reject your personal loan application. Still, many alternative and online lenders will accept your application quickly and offer a loan based on other requirements besides your credit score.

Pre-Qualify If Available

Depending on how much money you need to borrow, you might be able to pre-qualify if available from the lender. Even with bad credit, you can complete the application process and provide information the lender may find helpful to offset the fact that you have poor credit.

Get a Co-Signer

Even with bad credit, you may be able to get a co-signer for the small loan you want. A co-signer with good credit will be seen by the lender as a good risk and offer you the loan. Getting a co-signer is very common with student loans and even car loans. Always be careful with asking a co-signer to risk their credit score on your ability to repay a loan.

Provide Collateral

Some lenders will look more favorably at your small loan request if you can provide collateral. That’s an asset the lender can claim if you are unable to repay the loan. Examples of collateral include your car, your house, valuable collectibles, real estate or other tangible assets that are easy for lenders to seize from consumers who don’t make timely loan payments.

Getting a Line of Credit to Use for Unplanned Expenses 

You may not have every lending option available, but you can get a line of credit even with poor credit. Lenders like Grain know that you’re more than your credit score. Theirs is a practical solution for anyone who is locked out of the financial system due to past mistakes and resulting bad credit. 

Grain is a mobile app that provides a line of credit linked to your primary checking account, centered on your cash flow (credit check may apply). With Grain, your account is protected with bank-level security.

Using Grain is easy in 3 steps:

  • Download the app and sign up with over 10,000 banks Grain supports.
  • Connect your checking account and get an instant pre-approval for a line of credit.
  • Use your debit card and transfer credit to your checking account in seconds.
Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Disclaimer: Credit offer based on cash flow in the linked checking account and may require a credit check. All accounts are subject to ID verification and approval. See your Credit Agreement and Terms of Service for further details.

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