6 Types of Bad-Credit Loans

A low credit score may not keep you from getting all types of loans. In fact, some lenders provide loans specifically for people with bad credit. These can include personal loans for bad credit, “buy now, pay later” plans and cash advances from mobile apps.

Here are several types of loans for bad credit (a score below 630), why they’re worth considering and their potential risks.

Some online lenders tailor personal loans to borrowers with low credit scores. Bad-credit personal loans can be $1,000 to $50,000, come as a lump sum and are repaid in equal installments over about one to five years.

Why they work: Reputable personal loan lenders cap annual percentage rates at 36%, which is the highest rate consumer advocates say affordable loans can have. They can be large enough to cover expensive home repairs and are typically funded within a few days of approval, making them a viable emergency financing option.

Possible risks: Having bad credit means you’ll qualify for an APR near the top of a lender’s range. Although other bad-credit borrowing options have higher rates, a 20% or 25% APR on a $5,000 loan is still expensive.

» MORE: Pros and cons of personal loans for bad credit

It may be difficult to ask a friend or family member to lend you money, but it may also be the easiest and least expensive financing option. You can draw up a formal family loan agreement that includes what the funds will be used for and how they’ll be repaid.

Why they work: A friend or family member is unlikely to have a minimum credit score requirement or charge interest, as many other lenders do.

Possible risks: Mixing relationships and money can be dicey, and a loan gone awry may cause conflict.

Some banks and credit unions offer small loans of a few thousand dollars or less to customers. Major national banks like U.S. Bank, Bank of America and Wells Fargo offer small-dollar loans, and some credit unions offer payday alternative loans or similar products.

These loans cost less in interest than most other types of bad-credit loans, have repayment terms of a few months, and lenders may look beyond your credit score to qualify you.

Why they work: Because small bank and credit union loans have low rates and long repayment terms, they’re more affordable than small-dollar high-interest loans offered by some online lenders.

Possible risks: Small bank loans and some payday alternative loans are only offered to existing customers. Though your credit score may not be the only — or even a major — factor a lender considers for these types of loans, it may carry some weight on the application.

Buy now, pay later apps allow shoppers to split up a large purchase into smaller payments at checkout. The popular pay-in-four plans require a shopper to pay 25% of the cost upfront and cover the rest of the purchase in three biweekly installments. BNPL apps usually don’t do a hard credit check to approve customers.

Why they work: A BNPL plan can reduce the stress of a necessary, urgent expense like a mattress or laptop. Because the pay-in-four plans are interest-free, BNPL can be a no-cost financing option.

Possible risks: Most major retailers, including some grocery stores, offer this type of payment plan, which can make it easy to rely on them for everyday expenses. Frequent BNPL use can lead to overspending and cause people to lose track of upcoming payments. Some apps report payments to the credit bureaus, so missed payments can hurt your score.

A cash advance app is a mobile app that provides a small advance — often $500 or less — on your next paycheck. These apps use transaction history from a connected bank account to determine whether you qualify for an advance and how large it should be. There is no credit check, so your score isn’t a factor. The app takes repayment on your next payday.

Why they work: Loan apps can provide an advance within a few days after you request it, or instantly for a fee. Advances can be large enough to cover a modest vet bill or auto repair, or to bridge a brief income gap.

Possible risks: Cash advance app fees — including fast-funding fees and requested tips — coupled with short repayment terms make them difficult for some borrowers to repay without foregoing other necessary expenses or borrowing again shortly after.

Payday loans are small loans with high fees that are repaid quickly after you borrow. You can get a payday loan online or in person and the lender typically requires a post-dated check or access to your checking account to withdraw funds on your next payday.

Why they work: Payday loans are fast and easy to get. Lenders don’t check your credit or report payments to the credit bureaus.

Possible risks: These costly loans are difficult to repay in a short period, so borrowers often end up borrowing again to pay off the original loan or cover regular expenses. Because payday loan borrowers frequently end up in a debt cycle, these loans should be a last resort in a true emergency.

• Payment plans: If you’re struggling to make a mortgage, utility or doctor bill payment, consider asking to set up a payment plan. Many creditors have hardship plans available for those experiencing financial difficulties, as do many utility companies and physicians’ offices. Request a payment plan before going into debt to cover bills.

• Other ways to make money: If you have the luxury of time, consider ways to make quick cash. Options include selling clothes, delivering food, taking online surveys or listing a room on Airbnb.

• Get help from the government: Some government programs can help with utility bills and groceries, child care and a down payment on a home. 

• Local financial assistance programs: A local charity, nonprofit or food bank may help cover some of your financial burden while you focus on a pressing expense. Search NerdWallet’s database of financial assistance programs for local organizations that offer relief.