6 best direct loan lenders for bad credit

Have you been denied credit because of your low credit score? You're not alone; according to Creditnews data, over 75% of loan applications are declined due to, you've guessed it, poor credit.

Medical emergencies, job loss, poor budgeting, financial mismanagement, and other circumstances can significantly damage a good credit score. But it's not the end of the world.

There are loans specifically designed to help you get through a difficult financial period or pay off a significant expense while simultaneously rebuilding your credit. Read on to learn how to secure the best personal loan with bad credit—along with the five best lenders to consider.

But first, let's get down to the basics...

What is considered bad credit?

Your FICO credit score is a numerical representation of your financial trustworthiness that banks, credit card companies, and mortgage lenders use to assess whether money you borrow can and will be repaid responsibly.

Credit scores between 300 and 579 are considered “poor” and those between 580 and 669 are counted as “fair.” Although lower scores often mean higher interest rates or credit denials, getting a loan with bad credit is still possible.

Personal loans for bad credit usually have a fixed rate. Paying them off according to schedule can help improve your credit rating and increase your eligibility for more favorable loans in the future.

What is a direct loan?

Direct lender loans come directly from a lender like a bank, credit union, or other financial institution. They are not obtained through a middleman such as a broker, other financial service provider, or an online platform.

While middlemen provide a variety of lenders to choose from at your fingertips, nothing beats the good old personal touch.

Contrary to popular belief, direct loans can help you establish a stronger, one-on-one connection with the lender and potentially get a better deal, making them a more cost-effective option.

The five best bad credit loans

Before signing up for a loan, it is important to compare interest rates, loan terms, and associated fees to make sure you’re aware of exactly how much the loan will cost you.

Generally, the credit score requirements for the following lenders vary from no specified requirement to 640, and the application process for each company is based on their individual evaluations.

For example, a company like LightStream requires a FICO score, while Opploans considers other data, including job, school, background, and financial information through AI models.

1. Lending Point - Best for fast funding

Lending Point’s proprietary AI-driven technology provides access to financing to deserving individuals who may not meet the strict requirements imposed by traditional FICO-based models.

Since 2015, they have provided over $9 billion in loans. Speed, convenience, and flexibility make Lending Point a great option if you are looking to rebuild your credit or cover unexpected expenses.

You can also change your payment due date with LendingClub—either as a one-time occurrence or permanently—so long as your payments are current. Just be aware that your interest rates may change.

2. Oportun - Best for small personal loans for borrowers with bad credit

Oportun is the top choice for digital banking services and loans in 2023, as rated by Bankrate. Over the years, their members have saved an impressive amount, up to $2.3 billion.

The company offers Californians the ability to secure a personal loan of up to $18,500 by using their car titles as collateral. This is an excellent option for anyone who needs to get access to funds quickly and safely.

Oportun also offers a low starting point of $300 - a short-term financing option that may be more affordable than payday loans and ideal for minor hardships requiring a small amount of money.

3. Prosper - Best for debt consolidation

Prosper is a pioneer in the peer-to-peer lending sector for people of all income levels. Over two decades, it has facilitated more than $21 billion in loans to over 1.3 million users.

Their platform offers simple, fast, and fair financial tools and resources, including fixed-rate, fixed-term loans up to $50,000 for borrowers and attractive returns for investors.

Propser also accepts joint applications. If approved, you could get your funds before the next business day. Remember, they charge late payment fees ($15 or 5% of the unpaid amount, whichever is more).

4. Lightstream - Best for loan terms

LightStream is a premier online lender with incredibly competitive rates and fees. They offer loans from $5,000 to $100,000 without fees, charges, or penalties for early repayment.

Not only do they provide a speedy application process with same-day funds, but they also have a $100 satisfaction guarantee. They'll also offer a 0.10% point lower rate with the same terms that another lender has offered you.

With such great rates, excellent customer service, and a satisfaction guarantee, LightStream is emerging as a leader in online consumer lending.

5. OppLoans - Best alternative to payday loans

Founded in 2012, OppLoans is an online lending platform that provides installment loans to consumers with bad credit or no credit via a soft credit check.

The application process is easy, and same-day funding is available for those approved. Additionally, OppLoans offers personalized service and no hidden fees.

They also help improve your credit score by reporting individual payment history to the three main credit bureaus, making OppLoans an excellent choice for boosting your credit score.

6. Upgrade - Best secured loan

Upgrade is an online personal loan provider committed to providing customers with an easy and efficient loan process. The company has facilitated over $10 billion in loans.

Customers can take advantage of discounts for setting up autopay during their application, using their loan to pay off existing debt, and securing loans with their car as collateral.

In addition, joint applications are accepted for bigger, better loans. Upgrade also offers competitive monthly payments, no prepayment fees, and fast funding.

Dealing with high-interest loans for poor credit

Interest rates on bad credit loans may be as much as 35.99%, and when it comes to Payday loans, as high as 650%. They seem like a quick fix for those with bad credit yet come at a cost.

For example, if you took out a payday loan for $500 with an interest rate of 650%, the total cost to you would be $2,750—roughly 5-1/2 times more than the original amount.

If you’re a federal credit union member, you may want to consider a Payday Alternative Loan (PAL) to avoid the exorbitant interest rates and fees associated with Payday loans.

The National Credit Union Administration (NCUA) has set PAL loan amounts between $200 and $1,000, with repayment terms ranging from one to six months.

There’s a maximum interest rate of 28%, including an application fee of no more than $20 (You must have been a credit union member for at least a month to qualify.)

If you’re looking for a long-term loan, there is no avoiding higher interest rates. But you can look for the lowest possible APR by comparing lenders and choosing wisely.

An alternate option is to take out a secured loan, where you put up assets such as your house, car, or other valuables as collateral to get a lower interest rate. Upgrade is a good option in that case.

Bounce back from bad credit

Each of the lenders mentioned in this post offers loans to assist those with less-than-perfect credit scores to access much-needed cash and build credit.

And remember, when searching for the right lender, compare different offers and only borrow what you need to reduce high interest rates and help pay off your debt faster.