Best installment loans for bad credit in May 2024

An installment loan is a lump sum of money you borrow upfront, then pay back in a series of (typically) equal payments. While most lenders want you to have a good credit score before offering a loan, the best installment loans for bad credit make it possible to get a loan without good credit — or without a credit history.

Compare the best installment loan rates for bad credit of May 2024

Best installment loans for bad credit

We evaluated over 20 lenders to determine which offer the best installment loans for bad credit. We considered minimum credit score requirements and whether cosigners are allowed plus a range of other factors, including interest rates, loan amounts, repayment terms, fees, and discounts. Prequalify with lenders to compare rates and get a sense of which might offer you a loan before you apply. Prequalification is not an offer of credit, but it won't hurt your credit score. Once you apply for a loan, the lender will conduct a hard inquiry which could temporarily reduce your score.

Methodology

We evaluated the best installment loans for bad credit based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Our team of experts gathered information from each lender’s website, customer service department, directly from our partners, and via email support. Each data point was verified by a third party to make sure it was accurate and up to date.

How do installment loans for bad credit work?

The best installment loans for bad credit feature reasonable annual percentage rates (APRs), lenient credit score minimums, few fees, several repayment term options, and allow cosigners.

Many lenders prefer to work with borrowers with good credit. But some will lend to those with fair and bad credit scores. According to FICO, a fair credit score is one between 580 and 669. A poor credit score is less than 580.

Installment loans for bad credit work similarly to other installment loans. They have a fixed interest rate and fixed payment that you’ll make, usually monthly, over the duration of the loan. Depending on what type of installment loan you get, your loan term could last from one year to 30 years. Available loan amounts also depend on the type of installment loan, but can range from under $1,000 to well over $100,000. Loan amounts are typically received as a lump sum to use as you please.

The difference with bad-credit installment loans is that they can be harder to qualify for. In general, you may need to apply with a co-borrower or with a cosigner — either would be responsible for repayment of the loan, along with you, of course. If you apply for a loan with someone who has good credit, it can increase your chance of approval and even lower your rate. That’s because with a good-credit borrower on the loan, it’s a less risky proposition for the lender. While there are only a handful of lenders who accept cosigners, more let you apply with a co-borrower. The difference is that the co-borrower has equal right to access and use the funds, while a cosigner does not.

Installment loan example

Say you decide to take out a personal loan (a type of installment loan) to pay for your wedding. You need to borrow $10,000. You weren’t able to qualify on your own, but with your future spouse as a co-borrower, your loan application was approved at an interest rate of 22%. Based on your budget, you select a repayment term of four years, which breaks down to:

• $315 monthly payment
• $5,123 in interest
• $10,000 in principal
• A total of $15,123 over the life of the loan

Types of installment loans

There are several types of installment loans. Some are designed for specific purchases — like an auto loan or student loan — and others are more general.

• Personal loans: Personal loans are typically unsecured, fixed-rate loans. This means the interest rate won’t change, and you don’t need collateral to get a loan. You can use a personal loan for almost any purpose. Terms generally range from less than 1 year to 7 years, but some lenders offer longer terms, up to 12 years, for certain purposes. Since most personal loans are unsecured, they tend to have higher interest rates and can be more difficult to qualify for.
• Mortgage loans: A mortgage loan is used to purchase a home. They’re secured by your property, meaning the lender can take ownership of your house if you fail to make payments. Mortgage terms are typically 15 or 30 years.
• Home equity loans: Similar to mortgage loans, a home equity loan is a secured loan that taps the equity in your home and uses your home as collateral. Home equity loans are often used for home improvement projects, education costs, or other large expenses. Repayment terms can range from 5 to 30 years.
• Auto loans: An auto loan, or car loan, is a loan you get to purchase a vehicle. Auto loans are secured, meaning lenders can repossess your car if you default on the loan. Loan terms often range from 2 to 7 years.
• Student loans: Student loans, whether federal or private, are used to help pay for college. Some loans are based on need, while others aren’t. Federal student loans usually don’t require a credit check, but private loans do. There are various types of repayment plans, some with equal payments and some with payments that change based on your income.
• “Buy now, pay later” (BNPL) loans: BNPL loans offer the ability to split a purchase into installments, usually four or fewer and due biweekly, though terms vary. Typically, BNPL loans are available when shopping online, but you may find them in stores, too. Most don’t charge interest, but some plans do, especially longer terms, and they can charge fees for late payments.

How to improve your credit

Your credit score accounts for five major factors: payment history, amounts owed (credit utilization), length of credit history, new credit, and credit mix. Improving your credit in each of these areas will help improve your credit score overall:

• Make your payments on time, every time: Make sure you can afford the payments before taking out a loan or using credit. And make sure you pay on time by signing up for automatic payments. This improves your payment history.
• Maintain a low credit utilization: Using all of your available credit has a negative impact on your credit score. Lenders don’t like to see you using most of your available credit, so try not to max it out.
• Don’t close old credit cards: The longer your credit history, the better for your credit score. So don’t close your oldest credit cards, even if you don’t use them anymore. This also can help keep your credit utilization low.
• Keep an eye out for mistakes on your credit report: Mistakes happen, and they can be costly. Check your credit report periodically for mistakes, and follow up with the credit card company if you find anything odd.
• Don’t regularly apply for new credit: Applying for multiple accounts in a short amount of time can signal to lenders that you may be a risky borrower. Plus, applying for credit can temporarily lower your credit score. However, if you’re rate-shopping a mortgage or auto loan, FICO scoring models will treat multiple inquiries as 1 if they occur within either 14 days or 45 days, depending on the FICO scoring model used.

When possible, prequalify with lenders instead of submitting a formal application. This won’t impact your credit score, but gives you an idea of the rate and terms you might qualify for. Note that a hard credit pull — which does affect your score — will follow when you submit a formal application. Prequalification is not an offer of credit, and final rates may be higher.

Learn more: How does a personal loan affect your credit score?

When to consider an installment loan for bad credit

Getting an installment loan with bad credit isn’t always a good option — primarily because they often have high interest rates and fees. But sometimes, like in the following situations, it may be the right move:

• You can’t cover an emergency expense: Maybe your car broke down, your dog needed an expensive medical procedure, or you need to travel unexpectedly to help out a family member.
• You need to make repairs to your home: Some home expenses, like upgrades and remodels, can wait until you improve your credit. Others, like repairs or addressing safety concerns, are urgent and may require a home improvement loan immediately.
• You can get a lower interest rate than you currently have on other debts: With an installment loan, you can consolidate your debts by using the new loan to pay them off. If you can get a lower interest rate with an installment loan, you could end up saving money and lowering your payment.

In general, installment loans are only a good idea if you can afford the monthly payments. If you’re unsure about your ability to pay off the loan, use a loan calculator to estimate payments.

Check out: Best emergency loans for poor credit

Pros and cons of installment loans for bad credit

Installment loans for bad credit have their benefits, but there are some disadvantages to be aware of, too.

Pros:

• Finance big expenses: Installment loans give you a way to finance expenses that are an investment, like college or repairs and improvements to your home.
• Quick cash, in some cases: Personal loans can help you out in an emergency.
• Debt consolidation: You can use an installment loan to consolidate your debt and secure a lower interest rate.
• Improve your credit score: Paying back your loan on time and in full can improve your credit score.
• Fixed payments: With fixed-rate loans, monthly payments are consistent and predictable.

Cons: 

• Could hurt your credit: Defaulting on a loan — or even missing payments — can hurt your credit score.
• High interest: Interest payments can add up quickly, especially with a high rate, which bad-credit loans are likely to have.
• Fees can be high: Fees, like origination fees, tend to be higher on installment loans for bad credit relative to good-credit loans.
• More debt: Taking out an installment loan could increase your debt burden if you’re not using it to consolidate debt.

You may need to pay an origination fee or other upfront fee on an installment loan, especially if you have bad credit. This usually costs between 0.5% and 10% of the total loan amount, depending on the loan type. (Personal loans tend to have higher origination fees).

How to qualify for an installment loan for bad credit

Installment loans for bad credit often have less stringent eligibility criteria. But to get any loan, you still have to meet certain qualifications:

• Credit score: Minimum credit score requirements vary by lender. Installment loans for bad credit have lower — or sometimes no — credit score requirements.
• Income: You’ll need to show lenders that you have a steady source of income and enough money to repay the loan.
• Debt-to-income ratio (DTI): Your DTI tells lenders the amount of debt you have compared to your gross monthly income. Lenders like to see a DTI under 36%, though some accept higher. You can calculate your DTI by dividing your minimum monthly payments by your gross monthly income.
• Age: You typically have to be 18 or older to qualify for a loan.

You’ll likely also need the following documentation to qualify for an installment loan for bad credit:

• Form(s) of identification: driver’s license, birth certificate, passport, certificate of citizenship, etc.
• Proof of income: tax returns, W-2s, 1099s, bank statements, etc.
• Proof of address: utility bill, lease agreement, insurance policy with your address on it, etc.

How to apply for an installment loan for bad credit

The application process to get an installment loan for bad credit varies slightly by lender, but in general, take the following steps to get a personal loan:

1. Compare lenders: Shop around for the best installment loans for bad credit, knowing you may not be eligible for every loan. Compare things like fees, interest rates, loan maximums, credit score requirements, term options, and the time it takes to get the funds. 
2. Pick a loan option: Prequalify with several lenders, if possible, to get an estimate of your loan rate and terms. (Remember, this doesn’t impact your credit score.) Then, pick which looks best. Keep in mind the longer the term, the more you’ll end up paying in interest. But longer terms usually also come with lower payments.
3. Complete the application: Applications vary by lender, but you’ll generally need to provide the above information and documentation. Many lenders have an online application, though in some cases you may be able to apply in person if you prefer.
4. Get your funds: After the lender reviews your application and verifies your information, they’ll be able to approve you for the loan. Once approved, funding times can vary from one day to a week or more.

Alternatives to installment loans for bad credit

Sometimes installment loans for bad credit aren’t the best way to finance your upcoming cost. There are several alternatives that — in certain cases — may be the better option.

• Get assistance from charities and nonprofit organizations: Depending on your circumstances, financial situation, and geographical location, you may qualify for charity or nonprofit organization assistance, such as for medical treatment, home financing, or educational expenses.
• Payday alternative loans: Unlike payday loans, payday alternative loans (PALs) are small loans offered by national credit unions. They’re meant as a lower-cost alternative to high-interest payday loans, and they tend to have longer terms.
• Try credit counseling: If you’re struggling with debt, reach out to a certified credit counselor in your area through the National Foundation for Credit Counseling. They can review your situation, suggest an actionable plan, and even negotiate your interest rates and payments.

FAQ

What can I use installment loans for?

Installment loans can be used to pay for a wide range of expenses, including vehicles, medical expenses, home improvements and repairs, debt consolidation, and more. Note that individual types of installment loans may have limits on how you use them. For example, you generally can’t use a personal loan to pay college tuition or an auto loan to pay for a vacation.

Where can I get an installment loan for bad credit?

You can find installment loans for bad credit online as well as at banks, credit unions, and other lending companies. Depending on the type of installment loan you’re seeking, you may be able to prequalify online or get funding as soon as the same day.

Payday loan vs. installment loan

Payday loans tend to have much higher interest rates than installment loans — over 600% APR, in some cases — and generally don’t require a credit check. Borrowers pay back installment loans in a series of monthly payments, while payday loans are typically due in a single lump sum payment on your next payday. Installment loans come in higher amounts, and payday loans are smaller — typically $500 or less.

What are the typical interest rates for installment loans for bad credit?

It depends on the type of installment loan, your credit score, and whether or not you apply for a loan with a cosigner — among other factors. Rates can vary widely, from below 10% to more than 30%. Unsecured personal loans tend to have higher interest rates than secured loans because they don’t require collateral.

Read more:

• Where to get a personal loan
• Best debt consolidation loans
• Best emergency loans
• Best fast personal loans
• Best loans for bad credit
• Best online loans
• Best personal loan rates