What types of loans are available for people with bad credit?

I’ve been struggling with a poor credit score of 580 due to past medical bills and a job loss two years ago, which led to some late payments and a charge-off. I’ve since stabilized my income with full-time work but keep getting denied for traditional loans. Specifically, I need about $7,000 for car repairs and to consolidate high-interest credit card debt (around 25% APR). I’m a renter with no collateral and worried about predatory lenders or hidden fees. Are there legitimate loan options specifically designed for people with bad credit that I should consider, and how can I avoid getting trapped in worse debt?

The following types of loans are available for individuals with bad credit, each with distinct features, requirements, and risks:

1. Payday Loans: Short-term, unsecured loans typically due by your next payday. They require no credit check but carry extremely high fees (often $15-$30 per $100 borrowed) and APRs exceeding 400%. Loan amounts are small (usually $100-$1,000), and repayment is required in full, quickly leading to debt cycles if not managed.
2. Personal Loans from Online Lenders: Non-traditional lenders (e.g., Avant, OneMain Financial) specialize in bad credit borrowers. They consider alternative data (income, employment stability) and often fund within 24 hours. Interest rates range from 18-36%, and loans are unsecured with fixed terms (1-5 years).
3. Secured Personal Loans: Require collateral (e.g., vehicle, savings account, or jewelry) to reduce lender risk. Since collateral backs the loan, approval chances improve even with poor credit. Interest rates are lower (e.g., 10-20%) than unsecured options, but borrowers risk losing the asset if they default.
4. Credit-Builder Loans: Designed to improve credit scores. Funds are held in a bank account and released only after full repayment. Monthly payments are reported to credit bureaus. Terms last 6-24 months, with loan amounts typically $300-$1,000. No credit check is required; membership at a credit union (e.g., Self, SeedFi) is common.
5. Auto Title Loans: Use your vehicle as collateral, allowing borrowing of 25-50% of the car’s value (e.g., $500-$5,000). Approval is rapid, but interest rates hit 100-300% APR. Failure to repay results in vehicle repossession. Terms are often short (15-30 days), frequently rolled over, exacerbating debt.
6. Pawn Shop Loans: Collateral-based using personal items (e.g., electronics, jewelry). Loans are 40-60% of the item’s resale value, with 1-4-month terms. No credit checks, but interest rates reach 100-200%. If unpaid, the pawn shop keeps the item permanently.
7. Installment Loans: Repaid in fixed monthly payments (3-36 months) with set interest rates. Available from storefront lenders (e.g., World Finance) or online. Amounts vary ($500-$5,000), and no credit checks may be required. However, APRs can exceed 100%, and fees are common.
8. Loans from Family/Friends: No credit check or formal requirements. Terms are flexible and interest-free if agreed upon. Risks include relationship strain if repayment fails. Legal agreements (written contracts) are recommended to protect both parties.
9. Payday Alternative Loans (PALs): Offered by federal credit unions for members, regulated by the NCUA. Lower APRs (up to 28%) and longer terms (1-6 months) than payday loans. Require a modest savings account balance and membership for ≥1 month. Maximum loans are capped at $2,000.
10. Home Equity Loans/Lines of Credit (HELOCs): For homeowners, borrowing against home equity. Low interest rates (4-10%) due to collateral. Requires sufficient equity (often >20%) and decent loan-to-value ratios. Default risks foreclosure, making them high-stakes despite affordable rates.
11. No-Credit-Check Installment Loans: Promised by direct lenders or intermediaries. Bypass credit checks but feature predatory terms: high APRs (100-300%), $500-$5,000 limits, and automatic debit payments. Often trap borrowers in long-term debt with balloon payments.

Key Considerations:

• Higher Costs: All options carry elevated interest, fees, or collateral risks due to bad credit.
• Predatory Practices: Avoid lenders demanding upfront fees (legitimate lenders charge after funding) or vague terms.
• Rebuild Credit: Opt for credit-builder or secured loans to improve scores long-term.
• Non-Loan Alternatives: Explore debt management plans, nonprofit credit counseling, or side hustles to avoid high-cost borrowing.

Sources: Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and National Credit Union Administration (NCUA).