Online Loans For Bad Credit, Best Quick Easy Loans

Katherine Fan

Edited by

Katherine Fan
Paul Sisolak

Reviewed by

Paul Sisolak

There’s a good chance that, at some point, you might need a loan to help you get through a tight financial spot. Getting an online loan can be one way to get money fast.

An online loan allows borrowers to receive money from lenders online, which can be quicker or more accessible than going through traditional lenders. Some lenders can have the money in your account within a single business day once you’ve been approved for a loan.

But what if you have bad credit? The good news is that it’s still possible to get an online loan for bad credit. However, there might be some additional hoops to jump through, or other factors to be aware of.

Let’s take a look at what you need to know about online loans for bad credit.

What Does It Mean To Have Bad Credit?

First, it’s important to understand the credit system and what it means to have “bad” credit. The credit system is a way for potential lenders and others to review your financial history and determine whether they think you’re likely to repay the loan in a timely manner, according to the terms agreed upon in the loan agreement.

Credit History vs. Credit Report vs. Credit Score

Your credit history is basically everything related to how you’ve used loans in the past. Examples of loans include:

  • Credit cards
  • Personal loans (including online loans)
  • Car loans
  • Home loans
  • Lines of credit
  • Payday loans

Your lenders might report the history of your payments to a credit bureau. This credit history is then collected into your credit report.

Credit bureaus keep a record of your credit report so that it’s easy for others to see. When you apply for a new credit card or an online loan, a lender can review your credit report and see your credit history. Your monthly payments, the remaining amounts on your outstanding balances and other financial information is present in your credit report.

Finally, with your credit history listed on your credit report, the information can be turned into a credit score. Using complicated equations, the history in your credit report is converted into a number called your credit score.

The most frequently used credit scoring system is called FICO. There are different versions of your FICO score, but the important thing to remember is that many lenders make decisions about your overall ability to handle more credit on your FICO score, which rates your creditworthiness on a scale between 300 and 850. The higher your credit score, the more likely your credit is going to be perceived as “good.”

What Impacts Your Credit Score?

You should know what affects your credit score so that you have an idea of why your credit might be bad — and how you can potentially improve it over time.

Your credit score, especially your FICO score, is typically determined by the following five factors:

  • Payment history (35%)
  • Credit utilization (30%)
  • Length of credit history (15%)
  • Credit mix (10%)
  • New credit or credit inquiries (10%)

Let’s take a look at each credit score component.

Payment History (35%)

Your payment history tells lenders if you make payments on time and in the full minimum amount you’re expected to pay. If you’re late with a payment, it can mean a lower credit score. If you miss a payment, your score can be even more negatively impacted. The more payments you miss, the greater the likelihood that your score will drop.

As a general rule, your payment history accounts for approximately 35% of your credit score.

Credit Utilization (30%)

Many scoring models use the term “credit utilization” to describe how much debt you use out of what’s available for you to use. Credit utilization is a percentage of available credit you’re using on accounts like credit cards.

For example, if you have a credit card with an available credit line of $2,000 but with an outstanding balance of $1,000, your credit utilization is 50% because you’re using half of your available credit. If you have multiple credit cards with balances, your credit utilization will be the sum of your available credit lines, minus the outstanding balances you’re carrying on each card.

The FICO scoring model weights credit utilization at 30% of your total score.

Length of Credit History (15%)

Lenders also want to know how long you’ve been using credit. If you’ve been using credit for decades, as opposed to being relatively new to using credit, you’re likely to have a higher score. Those without a longer credit history haven’t sufficiently demonstrated their financial habits, so their credit score might be lower.

Your credit history accounts for about 15% of your credit score.

Credit Mix (10%)

Some lenders like knowing that you have different types of credit accounts. In general, credit scoring models look at installment loans versus revolving credit.

Many online loans are Installment loans, which require you to make regular payments at regular intervals. You have a set payment due at the same time per scheduled interval, and you no longer owe the debt once you fulfill the terms of that loan.

Revolving credit, on the other hand, refers to forms of lending such as a credit card or a line of credit from a bank. You are given a monetary limit, and you can borrow up to that amount. As you pay down your balance, you “free” up more credit to use again. The loan remains usable, but the repayment amounts aren’t predictable; instead, they’re based on your remaining balance.

Credit mix usually accounts for approximately 10% of your credit score.

New Credit/Credit Inquiries (10%)

Finally, the remaining 10% of your credit score is based on your most recent credit activity and inquiries, according to the FICO model. If you have recently young credit, you’re likely to have a slightly lower score. If you’ve applied for a lot of new credit or loans in recent days or weeks, it can also result in a somewhat lower score.

Understanding what influences your score can help you grasp why you might have bad credit, and provide you with the information you need to start taking steps to improve your score — and make it easier to qualify for loans in the future.

Credit Score Ranges

This brings us to the concept of “good” versus “bad” credit. If you’ve been told you have “bad” credit, it’s likely because your credit score falls below a certain number or range. Some general ranges to keep in mind when it comes to credit scoring models are as follows:

  • Excellent credit: Anything above 740
  • Good credit: Usually between 670 and 739
  • Fair credit: Often between 580 and 669
  • Bad credit: Below 580

Different scoring models might have variations, and there are different ways to measure credit. But, in general, it can be difficult to get a home loan with a score below 620, and it can be hard to get other types of loans with a score below 580.

However,  you might be able to get an online loan even with bad credit. Here’s what you need to know.

What Are Online Loans for Bad Credit?

Online loans for bad credit are specifically designed to provide funding for people with bad credit. Having bad credit doesn’t mean you’re a bad person. In fact, many people with poor credit scores end up there because of difficult circumstances or honest mistakes.

An online loan for bad credit might offer you a way to improve your credit and eventually turn your finances around. However, it can be challenging to secure an online loan, and they can be somewhat costly due to their high interest rates.

Bad-credit loans are designed to address some of these issues so that those with less-than-perfect credit can still have access to financing options.

When you get an online loan, it might help you get out of a tough situation. But it’s important that you be aware of the costs. Common characteristics of online loans for bad credit can be unfavorable compared to traditional loans, including:

  • Higher interest rates
  • Lower dollar amounts
  • Shorter repayment periods
  • More frequent payment dates
  • May require collateral

For example, a loan for bad credit could have an interest rate of 35.99% or higher (if the state in which you borrow money doesn’t have an interest rate cap), and you might only be able to borrow up to $3,000. You might also need to repay the money within six months, and make payments each week or every two weeks.

The example above is just one of many different possibilities, with varying interest rates and repayment terms.

These loan terms for bad credit differ from those of a loan for good credit. A loan for good credit might have a lower interest rate of between 5.99% and 15.99%, and you might have monthly payments for two to five years. Additionally, you might be able to borrow between $5,000 and $35,000, based on various factors.

Finally, depending on the situation, an online loan for bad credit may require you to put up collateral in order to qualify.

Collateral is something valuable that you use to “secure” the loan, such as a car title, savings account or another asset that holds similar value. If you don’t make the payments on your loan, the lender can take the collateral. For example, if you provide a car title as collateral for an online loan, the lender can repossess your car if you don’t make payments on the loan.

Secured vs. Unsecured Loans for Bad Credit

The potential need for collateral is important to understand because it can be part of any loan discussion, no matter your credit.

The two primary types of debt are:

  • Secured: Secured debt requires collateral. You provide something of value that the lender can take if you don’t make your payments. For example, a secured credit card usually requires that you make a large cash deposit upfront. Pawn loans and car title loans are also examples of secured loans.
  • Unsecured: Unsecured debt doesn’t require you to put up collateral. If you don’t make the required payments, the lender can’t take something of yours. However, the lender can still send you to collections and have debt collectors attempt to collect payment from you. Lenders can also sue you and get the courts to force you to make payment.

Unsecured loans for bad credit exist, even from online lenders. But in some cases, you might be required to get a secured loan if you have bad credit. Most of the time, however, online loans for bad credit are unsecured. Some lenders might require some type of collateral for an online loan, but many do not.

What Can Online Loans for Bad Credit Be Used For?

Because a loan for bad credit is considered a personal loan, they can be used for a variety of purposes. Online loans for bad credit can be used for:

  • Financial emergencies such car repairs, appliance replacement and medical bills
  • Events, such as weddings or funerals
  • Vacations
  • Moving expenses

For the most part, you can use a personal loan for just about any purpose so long as the money isn’t being used as a student loan or for some illegal purpose. However, some experts recommend that you only use loans for bad credit for necessary expenses such as a medical emergency or for unexpected moving or living expenses over a short period of time.

What Do I Need To Qualify for an Online Loan With Bad Credit?

To get started, it’s important to understand what you need in order to qualify for a loan with bad credit. Every lender has its own requirements, so you might need to shop around. But in general, you can expect that you will need the following if you’re going to get an online loan for bad credit:

  • Identification: You need to show who you are. In many cases, to get an online loan, you will need to upload a picture of your driver’s license or some other form of government-issued ID. Lenders often ask for your Social Security number. The idea is that you need to show proof of who you are before the lender will provide you with funds. Additionally, the identification allows them to check your credit and view your credit history.
  • Proof of income: Any time you borrow money, a lender wants to be reasonably sure you have the ability to pay the loan back over time. As a result, you usually have to show proof of income. For example, you might need to send over bank account statements that show regular deposits into your account. Or you might be asked to upload copies of your pay stubs, or to send a copy of your tax return.
  • Checking account: Many online lenders also require that you have a checking account. Many online lenders prefer to directly withdraw payments from your bank rather than wait for you to send payment. Without a checking account, you might not qualify for an online loan with bad credit.

In many cases, online lenders will connect to your bank account to get information about how often you receive income, and to verify that they can take your payments from the account.

How Lenders Connect to Your Bank Account When You Get an Online Loan

In order to qualify for an online loan with bad credit, you usually need to be prepared to allow the lender to connect to your bank account. Generally, they do this by using a third-party solution such as Plaid.

When you decide to apply, they’ll ask you to select your bank and then enter your login information, the same you use for online banking. You’ll even receive a code to your phone or email to verify that you’re making this attempt.

The information from your bank account login isn’t stored or even seen by the lender. Instead, your login information is turned into a data token used to verify with your bank that you have an account with money in it — or that you receive regular deposits from a job or some other type of income.

When you want to qualify for an online loan, you will likely need to use some type of bank verification to show that you have a checking account and income so that the lender can be reasonably assured that they can automatically withdraw your payments on a consistent basis.

Do You Need a Cosigner To Get a Loan With Bad Credit?

In some cases, you might need a cosigner to get an online loan with bad credit. A cosigner is someone with good credit who agrees to take on payments if you are no longer able to. If you default on the loan, they become responsible for your loan.

Some lenders have a qualifying requirement that borrowers must have a cosigner who can help guarantee the loan. It might be difficult to find someone, but you may know someone who is willing to help you. Usually, a cosigner needs to be a close family member or friend.

If you use a cosigner to qualify for an online loan with bad credit, that person will need to go through a credit check. Their credit and income will be evaluated as if they were attempting to borrow the loan themself. Additionally, when a potential lender reviews your cosigner’s credit report, the borrowed amount will appear on that report as the cosigner’s debt, even if you’re the one making payments.

If you obtain the help of a cosigner, it’s important to make sure that you can still make payments on the loan, especially if you don’t want to potentially ruin your relationship with someone who cosigned for you.

How To Get a Loan With Bad Credit

Once you’re ready to apply for an online loan with bad credit, follow these steps for the best possible deal.

Gather Your Documentation

Collect all the documentation you’ll need is in one place. Throughout the loan application process, make sure you read the fine print from the online lender of your choice so you know what documents to find and submit.

Consider taking images of the front and back of your driver’s license or other government-issued ID so it’s ready to submit when you need it. You won’t always need to submit an image of your ID, though. Sometimes just having the number is enough. Also, make sure you know your Social Security number, since it will likely be needed.

Make sure you have the login information for your current bank account handy. In some cases, you might need to provide your checking account and bank routing numbers. Look up both numbers ahead of time, just in case.

Have your income information ready, as well. Scan, download or take pictures of your latest pay stubs. Download and save recent bank statements; you’ll often need to submit several months’ worth of records. Consider getting a PDF version of your latest tax return. Having all this information readily available can make the application process go more smoothly.

Finally, collect the necessary documentation if you think you’ll need to put up collateral. You might need to submit information about your car and car title if you plan to use your car as collateral. If you have other assets that you plan to use, get documents proving your ownership. Any application goes more quickly when you have everything ready to go ahead of time.

Compare Different Lenders

Once you have your documentation, it’s time to start comparing lenders. Look online for different loan providers and compare terms and past customer reviews. You can also consider getting pre-approved for the loan, which can help you screen out issuers that aren’t a good fit.

Loan pre-approval is a process where lenders evaluate your credit in order to make you a loan offer. Lenders do this through what’s known as a “soft credit pull” or “soft credit inquiry.”

A soft credit pull takes a basic look at your credit history and credit score, but doesn’t impact your score. This distinction is important, because hard credit inquiries — the hit to your credit score that’s generated when lenders formally offer you a loan — can result in a slightly lower credit score. The more often you apply for credit, the lower your score might fall at a later date.

When looking for an online loan, you may find it helpful to get different pre-approvals so you can compare the terms being offered to you. Make sure you look at factors such as:

  • Origination fees: This is a fee that some lenders charge when they put together your loan. Some lenders don’t have them, but many lenders that offer online loans for bad credit do charge origination fees. These fees can be anywhere between 0.99% to 8.99% (or more) of your loan amount. In many cases, the fee is deducted from your funds. If you’re approved for a $4,000 loan and the fee is 2.99%, for example, your origination fee of $119.60 will be deducted from the funds, and you’ll actually receive only $3,880.40.
  • APR: Your annual percentage rate is how much the loan will cost you each year in interest. Your APR is part of the interest charge you pay to borrow money. The higher the interest rate, the more you’ll repay over time. If you have the option of getting a lower APR, this can be a way to reduce your overall cost.
  • Repayment terms: Look at the repayment terms the lender offers. Many lenders offer short-term loans of six to 12 months, while others might allow you to repay the loan over the course of three to five years.

The longer the term, the lower your monthly payment will be. This can make repayment more manageable, but you’ll also probably pay more in interest over time.

Be sure you also review the repayment intervals. Does the lender require you to make payments each week, or do you make a monthly payment?

Compare different offers to see which one makes the most sense for your situation. Look for a combination of terms that works for you based on your circumstances, needs, and budget. One way to get multiple offers at once is to use a website that takes your information once, runs a soft credit check, and then gives you multiple offers to compare. That way, you can easily see what options are available to you.

When using an online loan comparison site, you can often run side-by-side comparisons, then apply for the products you think will work best for your situation. From there, follow the loan application process itself.

Apply for the Loan

After you’ve done your research, it’s time to apply for the loan. If you receive an online loan offer, you’ll usually need to accept or decline it within a couple of days, so it’s a good idea to spend some time evaluating your options and make a decision as quickly as possible.

The application process is where you’ll likely need to provide the documentation you gathered earlier. The lender’s final decision will be made and shared with you shortly after you complete your online loan application.

Your loan amount and terms will be provided once you complete the application.

  • If you’re approved for the loan: Electronically sign the documents to accept your funds. As part of the process, you’ll have provided your bank account information. The funds will likely be deposited within one to three business days. In many cases of online loans for bad credit, the money will be directly deposited into your account.
  • If the loan application is declined: Find out if there is something else you can do to get the loan. You might need to provide a cosigner or put up collateral. If the lender lets you apply again with collateral or a cosigner, you may be successful in getting the loan in the end.

Benefits of Getting an Online Loan for Bad Credit

Online loans for bad credit can have certain benefits and advantages, depending on the situation. Some include:

  • Solve a financial emergency: If you’re in a tight spot and need cash fast, an online loan for bad credit can quickly provide you with the funds you need, which can help you swiftly resolve your financial emergency. Even if you don’t have good credit, an online loan for bad credit can help you get the money you need to resolve a temporary problem.
  • Convenience: An online loan is often more convenient than going to a bank or other lender. You can apply any time of the day or night without worrying about your work hours. Furthermore, the loan money goes directly into your account so you don’t have to take the extra step of making a deposit with a check.
  • Chance to build credit: Finally, you have the chance to potentially improve your credit when you get an online loan for bad credit. If your lender reports payments to one or more of the credit bureaus, your on-time payments can be used to boost your overall credit score. As long as you avoid further debt and consistently make your payments, you might see an improvement in your score over time.

Potential Pitfalls of Online Loans for Bad Credit

While there can be benefits to getting an online loan with bad credit, there are also some downsides to consider.

First of all, bad credit loans often come with higher costs and smaller amounts, so they might not always fit your needs. Additionally, depending on the situation, your online loan’s high interest rates can result in getting stuck in a debt cycle.

Creating a plan to pay off debt for good can be one way to get past the pitfalls of seeking an online loan for bad credit.

The Bottom Line

If you need a loan but you have bad credit, it’s possible to get the financing you need online. Online loans for bad credit offer a fast and convenient way to apply for funds, and such lenders are used to working with people who have poor credit. As long as you have income and a checking account, you might be able to get the funds you need. Just be aware of the costs involved and understand the requirements before you apply.