What Are the Best Loan Options for Those with Bad Credit?

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What Are the Best Loan Options for Those with Bad Credit?

It is a popular belief that only people who can show that they have no need of money are offered the best loans, while people who really need funds usually face the most difficulty in getting them. So, what do you do if you need money for unexpected medical bills, a sudden car breakdown or even to carry out home repairs when your credit may not quite be the best?

Home Equity Line of Credit (HELOC)

This is a viable option if you own a home and possess significant equity in it. However, borrowing by keeping your home as a security could leave you without a roof over your head if you default. Typically, you need to own at least 20% of your home, have a strong history of employment as well as good repayment capacity. The interest rate you are able to get depends on a combination of these factors, but be sure to shop for the best offer.

Bad Credit Loans

If your credit score has taken such a hammering that institutional lenders refuse loans, then you can approach lenders that specialize in loans to bad credit applicants. However, interest rates can be fairly high and you will need to make sure that the loan period is not too long as you could then be paying out a lot of money as interest. Bad credit payday loans usually carry the highest rates of interest, however, your credit score has no role to play in the approval process; you only need to show proof of employment and agree to pay the loan amount back on the next payday. These loans that can be used for short-term requirements of relatively small amounts are extremely convenient as the processing and disbursement are extremely quick.

Credit Union Loans

Credit unions are one of the most popular options for loans by people with bad credit as they have more relaxed rules and regulations than commercial banks. Becoming a member is simple and usually possible to those living in a particular area or working in a specific profession. The rate of interest, fees, and penalties are generally lower as they are non-profit institutions, and you get the personalized service that is often missing in large banks.

Peer-to-Peer Loans

Available through online platforms, peer-to-peer loans enable borrowers to get funds from individual lenders instead of financial institutions. Even though they are unsecured, many lenders are willing to lend to even borrowers with bad credit at extremely attractive interest rates after factoring in aspects like employment history, social profile, and the quality of their online interaction. Fees and penalties are typically far lower than that charged by banks.


When in financial distress, any of the above methods can be effective for accessing funds with bad credit. However, to avoid uncertainty in the future, it is best that you start rebuilding your credit profile so as to qualify for better interest rates and not get trapped by the never-ending cycle of fresh debts to pay off the earlier ones.

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