Can I Borrow Money With a 500 Credit Score?

Securing a loan with a 500 credit score may be challenging, but that doesn’t mean every lending door is closed. Though more difficult, borrowing money is possible even with a low credit score.

Before you make a move, know your loan options for a 500 credit score, how your credit score will affect interest rates and fees, and alternatives to personal loans for bad credit.

Where to Get a Loan With a 500 Credit Score

Getting a traditional loan from a bank or credit union when you have a 500 credit score can be tough. You may be able to obtain a loan from an online lender or explore secured loans.

Other options, such as pawnshop, payday or title loans, are generally not recommended because of their exceptionally high interest rates and fees and lenders that often use predatory practices. Because these types of loans can trap you in a cycle of debt, you will want to consider alternatives with more reasonable terms.

“In the low 500s, your options will be extremely limited for all forms of credit, including personal loans,” says credit expert John Ulzheimer, formerly of Equifax and FICO. “Get used to the answer ‘No.'”

How to Get a Personal Loan With a 500 Credit Score

Follow these steps if you’re searching for a personal loan with a 500 credit score:

  • Check your credit score. Pull your credit report and credit score to find out where you stand and to get an idea of what lenders see when they run your credit. You can access free weekly online credit reports from the three major credit bureaus, Equifax, Experian and TransUnion, through December 2023. Check your reports for errors you can dispute and correct.
  • Research lenders. Search for lenders that work with bad-credit borrowers, such as online lenders.
  • Determine eligibility criteria. Understand the requirements of lenders you’re considering. Lenders may accept borrowers with a 500 credit score but expect you to meet additional criteria, such as a minimum income or employment history.
  • Look into fees and interest rates. Ask about fees and interest rates you might pay if you get a loan. You may need to prequalify with a lender to get details on your loan offer.
  • Prepare documents. After you’ve shopped around and found a loan, get ready to apply by gathering the documents you’ll need. These typically include your ID and proof of income, such as pay stubs.
  • Apply for the loan. Fill out the application and provide documentation as needed. Consider a co-signer if you’re not sure that you’ll be approved or fear that the rates and fees will be unreasonable.
  • Review the terms and conditions. If you’re approved, scrutinize the loan offer, particularly the repayment term, interest rate and fees. Before accepting the offer, you should understand the repayment schedule and total loan cost.
  • Receive funds and start repayment. After you accept the offer, you will get your funds and begin repayment. Plan to make timely payments to improve your credit score and demonstrate financial responsibility.

What Is the Easiest Type of Loan to Get With Bad Credit?

While you can probably get a payday, auto title or payday alternative loan with bad credit, a better option is a bad credit personal loan.

Online lenders sometimes offer bad credit personal loans. These lenders may emphasize your income more than your credit score when making lending decisions.

Still, your options may be limited, and you should expect to pay higher rates and fees than borrowers with good credit. “If you find a lender willing to take a chance on you in the low 500s, understand they will subsidize the risk with a high interest rate,” Ulzheimer says.

Bad credit personal loans are usually unsecured. But a secured personal loan could be an option if you need a loan with bad credit and have a valuable asset to pledge as collateral, such as a savings account. You risk losing your collateral on a secured loan, however, if you can’t make payments.

“Anything unsecured, and your odds are very low of being approved,” Ulzheimer says. “When you start talking about asset-based loans, your approval odds are good.”

But he points out that you’ll only be able to borrow a percentage of the fair market value of your asset.

Adding a co-signer for your loan is another way to help you get approved if you have bad credit. Using a co-signer with good credit may also enable you to get lower interest rates and fees than if you applied alone.

You’ll need a good relationship with the co-signer because that person’s credit history is on the line if you miss payments or default on the loan. Your co-signer is legally obligated to repay your loan if you can’t.

If you’re considering a mortgage with a 500 credit score, you are unlikely to find a lender that will work with you. While some mortgage programs accept borrowers with credit scores in the lower 500s, the lender determines underwriting and loan approval, says Dave Krichmar, a mortgage banker in Houston.

“Work with a lender who will advise you on how to get your credit scores up and apply for a mortgage,” Krichmar says.

He recommends using a credit score simulator to estimate how certain financial moves could affect your credit.

How Will a 500 Credit Score Affect Loan Rates and Fees?

With a 500 credit score, you are considered a high-risk borrower and will pay higher interest rates and fees for loans than borrowers with better credit.

High-risk borrowers have bad or minimal credit, making them prone to default. This is the reason that lenders charge these borrowers more: to compensate for the increased risk.

Avoid a high-risk loan if you don’t know the cost of extras such as origination, application and late payment fees.

How to Get the Best Personal Loan With Bad Credit

Don’t expect the lending options to be great if you have bad credit. You will be limited in choice of lenders willing to work with you, and you will face unfavorable terms.

Using a secured loan or adding a co-signer is a good way to improve your approval odds and loan terms.

If you have time before you need the loan, do what you can to improve your credit score. For example, a couple of months of on-time credit card payments can lower your balances and boost your on-time payment history to improve your credit score.

If you don’t need the money right away, “It’s best to wait until your credit improves so you can deal with a more reputable lender with better terms,” Ulzheimer says.

Make sure you read the fine print to know what you’re getting into. Bad credit personal loans may have predatory terms, such as hidden fees or excessively high interest rates. Read customer reviews before you sign on the dotted line, too.

Should You Take Out a Personal Loan if You Have Bad Credit?

Taking out a personal loan doesn’t always make sense, especially if you have bad credit. While a personal loan can help you meet immediate financial needs, every loan comes with potential benefits and risks.

On the positive side, a personal loan could help if you need to cover basic needs, pay off high-interest debts or build credit with on-time payments. But you should be ready to pay high interest rates and fees.

If you can’t make payments, you could further damage your credit. You may deal with the loss of your asset if you pledged collateral or damage to a relationship if you applied with a co-signer.

Alternatives to Personal Loans for Bad Credit

Before you take out a personal loan with bad credit, consider these alternatives:

  • See if a home equity loan or line of credit is an option.
  • Try to negotiate payment plans with creditors.
  • Look into a credit card for bad credit.
  • Ask about low- or no-interest payment plans for medical, utility or tax bills.
  • Borrow from family members or friends.
  • Explore peer-to-peer lending, which allows investors to work directly with people who want loans.

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