Pros & Cons of Borrowing with Bad Credit


You may be surprised to learn you can get a loan if you have a lower credit score. Such loans can help improve your credit score and get you back on track. But just because you can obtain, say a debt consolidation loan with bad credit, should you?

Here are the pros and cons of borrowing with bad credit.

What are “Bad Credit Loans”?

These loans target those with credit scores that are on the low side – usually under 670. While they allow these consumers to gain credit not easily found elsewhere, the loans usually come at a price—loftier borrowing costs. Here are some of the benefits and drawbacks to help you decide whether such a loan is right for you.


A bad credit loan can seem like a miracle if you’re in need of funds and seemingly have exhausted all options.

Advantages include:

Quick Funding

Many bad loan lenders can be found online, and it’s not unusual to get a same-day decision. Loan funds can often be in hand within a few days if approved.

Can Help Rebuild Your Credit

You’re on your way to rebuilding your credit profile if you’re approved for a loan from a lender that reports to the credit bureaus. Your payment history is the most important part of your credit score, so be sure to make loan payments on time.

Broad Lending Guidelines

Traditional banking institutions largely zero in on your credit rating, which must be good or excellent, when deciding whether to give you a loan. 

On the other hand, lenders that extend loans to those with fair to poor credit often also consider factors such as income and length of employment. A fair FICO credit score is between 580 and 669.


There are some disadvantages to consider if you’re thinking of applying for a bad credit loan.

Possible Collateral

Your only option may be a secured loan when your credit score presents a lender risk. That means you’ll have to attach an asset such as your vehicle or another property as collateral. It also means you will likely lose your property to seizure if you fail to make payments.

Fees and Penalties

You may face multiple fees including an origination fee, charged to process the loan application. The fee amount will depend on your overall credit profile as well as your credit report. So, those with lower credit scores might face higher fees, which are usually deducted from the loan total. There may also be early repayment penalties if you pay the loan off before your scheduled due date.

High Interest Rates

Borrowers with good to excellent credit generally get the best interest rates. Thus, consumers with lower scores usually must contend with markedly higher rates. That renders the monthly payment unaffordable in some instances.

Bad Credit Loan Alternatives

Perhaps a bad credit loan doesn’t suit your situation.

In that case:

  • Try for a credit card. Cards are available for those with subpar credit. While such cards usually carry relatively high interest rates and fees, you might not pay as much overall as you would with a loan. You may also be able to get a secured credit card, which requires the user to make a deposit against the card’s credit limit.
  • Use an existing credit card. If you already have a credit card, you might want to use it instead of getting a bad credit loan. To keep interest charges down, pay off the balance as soon as possible.
  • Hit up a friend or relative. You may be able to get an interest free loan from a buddy or family member—especially if you’re employed. You must be sure to repay the loan on time, though, or risk damaging the relationship.

So, yes, there are guaranteed debt consolidation loans for bad credit. But you’ll likely pay a price with regards to interest rates and fees. Compare the pros and cons of borrowing with bad credit, and make the decision that’s right for you.

Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.