4 best small loans for bad credit in 2020

Couple paying bills, reading paperwork at laptop in breakfast nook Image: Couple paying bills, reading paperwork at laptop in breakfast nook

In a Nutshell

Getting a small loan with bad credit is possible, but it will take a bit of legwork to determine the best options for your financial situation. You’ll want to make sure to understand all of your loan’s terms, so you don’t end up paying astronomical interest rates or fees. Learn more about our picks for the best small loans for bad credit.

Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Availability of products, features and discounts may vary by state or territory. Read our Editorial Guidelines to learn more about our team.
Advertiser Disclosure

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Whether the month lasts longer than your paycheck does or a sudden emergency expense pops up, sometimes you may need a small loan for extra cash.

The good news is that there are plenty of options for small loans with bad credit. The bad news is that many of these loans are financially risky and can put you in a worse position than when you started.

That’s why you need to be strategic about getting a loan if you have bad credit. What is bad credit, exactly? Each lender has its own definition of what bad credit scores are. But people with credit scores of 579 and lower are typically considered riskier borrowers.

Read on to see our picks for small loans, as well as the types of loans you should avoid if possible.



Our picks for small loan lenders

The lenders below all have a few things in common — they offer “traditional” personal loans rather than loans with higher interest rates such as payday loans. Additionally, they all provide potentially fast funding and a range of options for how much you can borrow when you need a small loan.

Earnin

Good for: Paycheck advance

Pros

  • No interest or fees, and tips are optional
  • “Balance Shield” feature can help prevent overdrafts from your bank account
  • App available for Apple and Android users

Cons

  • Eligibility based on how you’re paid or what work you do
  • Sacrifice some privacy by using app
  • Low withdrawal limits

Stilt

Good for: Immigrants and underserved

Pros

  • Doesn’t require Social Security number for loans
  • Considers more than credit scores
  • Competitive starting interest rates

Cons

  • Loans may take more than 24 hours to process
  • No option for a co-signer
  • No way to tell what full APR ranges are

Personify

Good for: Small emergency loans

Pros

  • Considers applicants with lower credit scores
  • Option to apply for prequalification
  • May get funding by next business day following loan approval

Cons

  • May charge origination fee depending on your state
  • Extremely high interest rates
  • Not available in all states

Possible Finance

Good for: Small loan amounts

Pros

  • Only small loan amounts — may help prevent overborrowing
  • Can help you build credit

Cons

  • High APRs
  • Not available in all states
  • Short repayment terms

Small loans to avoid if possible

A small loan may be a good solution for covering an emergency or unexpected expense — but here are some more things you should know.

When it comes to loans for people with bad credit, some options will be better than others. Here are some common types of small loans you may want to think twice about before signing on the dotted line. 

Payday loans

A payday lender might seem like a good option if you have a poor credit rating or no credit history. After all, these lenders usually don’t perform credit checks, and generally the application process allows you to get your money immediately.

Payday loans are short-term loans that are typically made for $500 or less and are usually due on your next payday. You’ll often hear of them as a way to bridge a financial gap until you get paid again.

But “payday loans have long been considered a predatory product and even been banned in some states,” says Thomas Nitzsche, a credit expert with Money Management International, a National Foundation for Credit Counseling agency. “The reason is that they often carry very high interest rates and that consumers often find themselves stuck in a cycle of payday loan debt.” 

Title loans

Like payday loans, title loans can have very high fees. With a title loan, you pledge the title to your car in exchange for the loan.

Title loans can cost you your vehicle if you fail to pay up. And because the higher interest rates on these loans can make them difficult to pay off, that’s a risk you may not want to take.

Pawn shop loans

You may also be familiar with pawn shop loans. With these loans, you’ll bring in an item of value in exchange for a small loan up to the value of the item.

If you want the item back, you have to repay the loan before the term is up (the term varies state to state). Even then, you may have to pay expensive fees and interest. If you don’t repay the loan, the pawn shop can keep the item and sell it (and typically none of the money from the sale goes to you, the former owner).

Other small loans to consider

These loans may be a step up from the types of loans we described above, but you’ll still want to plan how they’ll fit in your larger financial picture so you can make financial progress once the loan is paid off.

Payday alternative loans

You can explore options at credit unions for a small loan. Some federal credit unions offer affordable loans called payday alternative loans.

A payday alternative loan must meet several requirements, including interest rates that don’t exceed 28%, loan terms of one to six months and loan amounts of $200 to $1,000.

Personal loans from online lenders

Online lenders are another option for small personal loans for people with bad credit.

Personal loans are installment loans where you borrow a fixed amount of money and pay off the debt over a predetermined number of payments. Some personal loans are secured, meaning they require collateral like a house or car, but there are also unsecured personal loans that don’t require collateral.

Some lenders are peer-to-peer lenders, meaning the personal loans are funded by individual investors instead of traditional financial institutions in an effort to get you a better deal.

In general, the better your credit rating, the lower your interest rate. But even a loan from an online lender will typically have more-favorable terms than a payday loan, which can have very high rates and fees.

Alternatives to small loans for bad credit

If you can’t qualify for a loan or find another way to bridge your cash needs, there are a few other options.

Budget cutting or payment assistance

If you need a small amount of cash, the best scenario may be to free up money elsewhere, if you’re able.

“If you are someone with poor credit but have assets that can be liquidated, then perhaps you can sell items of value,” Nitzsche says. “Your credit card company may offer a hardship plan to reduce interest and payment. Your landlord might be willing to offer a one-time extension or break up your payments into two parts.”

In these cases, you don’t even need to take out a small loan at all.

Cash advance

You can inquire with your employer about getting a short-term advance from your paycheck.

“This would depend on your relationship with the employer, and likely its size,” says Nitzsche.

Another option for a small cash advance is getting one right from your credit card. This is a way to withdraw some of your available credit as cash, instead of purchasing something. Many credit cards offer this feature, although lenders often charge high interest rates — but nothing close to payday loans.

Home equity line of credit

If you own your own home, another option is taking out a home equity line of credit, or HELOC for short. This allows you to tap into the equity you’ve built up in your home to bridge short-term cash needs.

When you apply for a HELOC you’ll likely get checks or a credit card you can use to pay for purchases during a special “draw period.” If you choose to spend some of this money, you’ll need to make minimum payments on the outstanding balance until the draw period ends. Then, the line of credit often converts into a “repayment period,” where you repay any outstanding balance over time or all at once, depending on your HELOC’s terms.

Friends and family

Finally, if all else fails, you can consider asking your friends or a family member for a small loan. We think it’s a good idea to get this in writing with terms that include monthly payment amounts, interest charges and due dates. It’s a good idea to treat the agreement like it’s a loan from a traditional lender.

The downside of this option is that if you fail to pay the loan back, you could hurt your relationship with those closest to you.

Family loans: What to know before borrowing or lending money

Next steps: Start planning for your next emergency or big expense

Although it can be difficult to break the paycheck-to-paycheck cycle, try to start regularly setting aside small amounts of money for emergencies if you can.

Even saving $5 or $10 each paycheck could help you create a “pay-yourself-first” mindset. This means you make sure some of your earnings go into a savings account each payday so you’re not tempted to spend more money on wants versus needs and end up with credit card debt or other unwanted expenses.

Keeping your savings in a separate high-yield savings account can also help make it easier to keep these funds reserved for emergencies. The key is to save what you can consistently so that you have an emergency cushion for the future to use instead of turning to small loans.


About the author: Lindsay VanSomeren is a freelance writer living in Kirkland, Washington. She has been a professional dogsled racer, a wildlife researcher, and a participant in the National Spelling Bee.… Read more.