5 Best Small Personal Loans for Bad Credit of 2025

Need a small loan but have bad credit? Traditional banks often deny borrowers with low credit scores, and payday lenders charge sky-high interest rates that can keep you in debt for months. But there are lenders that specialize in working with bad credit borrowers—if you know where to look.

The key is finding a loan that offers fair terms without trapping you in a cycle of debt. Below are five lenders that offer small personal loans, even if your credit isn’t perfect.

5 Best Small Loans for Bad Credit

If you need a small personal loan, lending marketplaces can help by connecting you with multiple lenders so you can compare offers without applying individually. Some lenders also offer direct short-term loans for bad credit borrowers.

Below are four lending marketplaces and one direct lender that offer small personal loans, even if your credit isn’t perfect. You’ll need an active checking account to qualify.

How Small Personal Loans Work

Small personal loans are unsecured, meaning they don’t require collateral. They are often used for emergencies, medical bills, or unexpected expenses. Since lenders take on more risk, interest rates tend to be higher, especially for borrowers with bad credit.

Common Loan Amounts and Repayment Terms

Most small personal loans range from $100 to $5,000, though some lenders offer up to $35,000. Loan terms vary from a few months to five years. Shorter loan terms mean higher monthly payments but lower total interest costs, while longer terms spread payments out but result in higher interest over time.

Annual percentage rates (APRs) typically fall between 5.99% and 35.99%, depending on the lender and your financial profile.

What to Expect When Applying

Applying for a small personal loan is usually quick and can be done online. Lenders will ask for:

• Personal details: Name, address, and Social Security number.
• Income information: Proof of employment or other sources of income.
• Banking details: Account information for direct deposit and loan payments.

If approved, funds are usually deposited within one to three business days. Some lenders offer same-day funding, though this may come with additional fees.

Why Get a Small Personal Loan

There are several reasons why someone might consider taking out a small personal loan, including:

1. Emergency Expenses

Unexpected expenses can arise at any time and may require immediate financial attention. Small personal loans can be a quick solution to cover costs associated with medical emergencies, car repairs, or home repairs.

2. Debt Consolidation

If you have multiple high-interest debts, such as credit card balances or payday loans, a small personal loan can be used to consolidate those debts into a single, more manageable payment with a lower interest rate. This can help you save money on interest charges and potentially pay off your debt faster.

3. Home Improvement Projects

Small personal loans can be an affordable way to finance minor home improvement projects that can increase the value of your home or make it more comfortable to live in. Examples of such projects include painting, landscaping, or minor kitchen and bathroom upgrades.

4. Special Occasions

Occasionally, you might want to finance a special event, such as a wedding or a once-in-a-lifetime vacation. A small personal loan can provide the necessary funds to cover these costs without depleting your savings.

5. Building Credit

If you have limited credit history or are looking to improve your credit score, a small personal loan can help you build a positive payment history. By making consistent, on-time payments, you can demonstrate responsible credit use, which can boost your credit score over time.

When considering a small personal loan, you’ll need to evaluate your financial situation and ensure that the loan is the best option for your needs. Always compare lenders, interest rates, and terms to find the most affordable loan for your circumstances.

Remember to borrow only what you need and have a plan in place for repaying the loan on time to avoid further financial strain and potential damage to your credit score.

How to Apply for a Small Loan With Bad Credit

Getting approved for a loan with bad credit is possible, but it requires preparation. Lenders consider your credit score, income, and debt-to-income ratio before making an offer. Taking the right steps can help you get a better loan with lower interest rates.

Step 1: Check Your Credit Report

Before applying, review your credit report for errors that could be lowering your score. Mistakes like incorrect balances or outdated negative marks can impact loan approval.

You can check your credit report for free at AnnualCreditReport.com and dispute any inaccuracies with the credit bureaus.

Step 2: Get Prequalified

Many lenders offer prequalification with a soft credit check, allowing you to see estimated loan offers without affecting your credit score.

Prequalification isn’t a guarantee of approval, but it gives you an idea of what interest rates and loan amounts you may qualify for.

Step 3: Compare Offers and Apply

Once you have prequalified offers, compare them carefully:

• APR and fees: Watch for high rates and hidden fees.
• Repayment terms: Shorter terms mean higher monthly payments but less interest overall.
• Funding speed: Some lenders offer same-day funding, while others take a few business days.

After choosing a lender, complete the full application, provide any required documents, and review the loan agreement before accepting the funds.

What to Watch Out for When Borrowing With Bad Credit

Not all lenders have your best interests in mind. Some charge excessive fees, while others prey on borrowers with misleading terms. Knowing what to avoid can help you make a smarter borrowing decision.

High APRs and Fees

Borrowers with bad credit often face higher interest rates and additional fees, but some lenders charge excessive APRs that make repayment difficult.

Avoid loans with:

• APR above 36%: Anything higher is extremely expensive.
• Origination fees over 5%: Some lenders charge these just to process your loan.
• Prepayment penalties: These prevent you from paying off your loan early to save on interest.

Avoiding Payday Loans

Payday loans may seem like an easy fix, but they often come with 400%+ APRs and short repayment terms that make it hard to escape debt. Many borrowers end up in a cycle of renewing their payday loans, racking up more fees.

Instead, consider:

• Lending marketplaces: Compare multiple offers to find lower rates.
• Credit union loans: Some offer small loans with reasonable rates.
• Credit builder loans: These help improve your credit while providing access to funds.

Scams Targeting Bad Credit Borrowers

Some lenders take advantage of borrowers with bad credit by making false promises or charging hidden fees. Be on the lookout for:

• Guaranteed approval: No lender can promise approval without reviewing your finances.
• Upfront fees: Legitimate lenders do not ask for payment before issuing a loan.
• Unregistered lenders: Check that the lender is registered in your state before applying.

If something feels off, research the lender, read reviews, and confirm their legitimacy before providing personal information.

Alternatives to Small Personal Loans

A small personal loan isn’t always the best option, especially if you have bad credit and face high interest rates. Before borrowing, consider these alternatives that may offer lower costs or better long-term benefits.

Credit Builder Loans

Credit builder loans help borrowers improve their credit while saving money. Instead of receiving the loan funds upfront, the lender places the money in a secured account, and you make fixed monthly payments until the loan is fully repaid.

• Best for: Those looking to build or rebuild credit with a structured repayment plan.
• Downside: The loan funds are not accessible until after making all payments.

Secured Loans

Secured loans require collateral, such as a car or savings account, which reduces the lender’s risk and can result in lower interest rates. Common secured loans include auto title loans and secured personal loans from banks or credit unions.

• Best for: Borrowers who own an asset they can use as collateral and need lower interest rates.
• Downside: If you fail to repay, the lender can take the asset.

0% APR Credit Cards

Some credit cards offer 0% APR introductory periods, allowing you to borrow money interest-free for a set period, usually between six and 21 months. If you qualify, this can be a great way to cover expenses without paying extra in interest.

• Best for: Those with fair or good credit who can repay the balance before the promotional period ends.
• Downside: If the balance is not paid off in time, interest rates can increase significantly.

Borrowing From Family or Earning Extra Income

If possible, borrowing from friends or family may be a low-cost option, as they likely won’t charge interest. Setting clear repayment terms can help avoid conflicts.

If only a small amount is needed, picking up a side gig, selling unused items, or offering freelance services may be a better alternative than taking on debt.

• Best for: Those who need short-term financial help without high fees.
• Downside: Not everyone has the option to borrow from family or take on extra work quickly.

Final Thoughts

Taking out a small loan with bad credit can be risky, but it is possible to borrow responsibly. Avoid payday loans, compare multiple lenders, and choose the option with the lowest interest and fees.

Only borrow what is necessary and have a plan for repayment to avoid falling into deeper financial trouble. Once immediate financial needs are met, focus on building an emergency fund and improving your credit score to qualify for better loan terms in the future.

Long-term financial stability will provide more options and lower borrowing costs. Making on-time payments, reducing debt, and considering alternatives like credit builder loans can help create a more secure financial future.