You may think the only option after bankruptcy is a payday loan, but there are several solid alternatives to payday loans for bankrupts. Thanks to modern banking technology, it’s easier than ever to find a lender that offers personal loans to people with poor credit or a past bankruptcy.
If you’re looking for a way to get back on your feet after bankruptcy and start rebuilding credit, here are the best bankruptcy loan options.
Can you qualify for a personal loan after bankruptcy?
When a person files for bankruptcy, their credit score takes a dive. This makes it extremely difficult to qualify for most forms of financing.
Most traditional lenders, including banks and credit unions, will reject applications for unsecured loans from consumers with bad credit or derogatory marks (ex. bankruptcy or accounts in collections) on their credit report. After all, lenders usually have minimum eligibility requirements for their loan products, such as:
- fair or good credit (580 to 739, according to Experian)
- low debt-to-income (DTI) ratio
- stable income
The lenders who are willing to work with bankrupts usually place unfavorable terms on their loan products, such as higher interest rates and other fees that other consumers don’t have. As a result, many people who file for bankruptcy end up turning to predatory lenders who offer high-interest payday and installment loans at unreasonable rates.
Still, it isn’t all doom and gloom.
There are reputable lenders willing to work with those with a less than stellar credit history. When making their decision, these lenders will consider other factors besides the consumer’s credit score or bankruptcy. These factors include:
- Type of bankruptcy (Chapter 7 or Chapter 13)
- Reason for filing for bankruptcy
- Borrower’s current credit score (this can improve over time)
- Borrower’s current income
- Any remaining debt
- Other financial obligations
Time has a major impact on a person’s eligibility to qualify for a personal loan or other loan product as well. For example, a person who had their bankruptcy discharged or dismissed several years ago will have a better chance of qualifying for a personal loan than someone who still has an active bankruptcy case.
In general, the longer it’s been since filing for bankruptcy, the easier it is to find a lender with reasonable rates. This is especially true for those who’ve been actively working on improving their credit and financial situation since filing.
Best personal loans for discharged bankrupts (that aren’t payday loans)
A discharged bankruptcy is a court order that frees the individual who filed from any debt covered in the bankruptcy case. This freedom gives them the opportunity to pursue different forms of financing once again.
So, before you turn to payday loans for bankrupts, here are the seven best personal loan lenders and marketplaces to consider.
MoneyMutual is a free online marketplace that connects prospective borrowers with credible lenders for financing. To use this marketplace, simply complete the secure, online application and wait to be connected with potential lenders.
Things to consider:
- MoneyMutual itself is not a lender. However, it is a convenient platform that matches borrowers with the best lenders.
- Every lender has its own eligibility requirements, as well as its own fees, loan terms, and conditions. Some lenders offer personal loans to people with a recently discharged bankruptcy and poor credit, but these loans may come with higher fees.
- Funds may be available within one business day, depending on the lender and how quickly the platform verifies the applicant’s information.
- Some lenders on the platform offer short-term, bad credit loans like payday loans and installment loans. Always read the fine print before signing anything.
- Loans range from $200 to $5,000 and have various repayment terms.
- Loans are not available to residents of CT or NY.
- To qualify, the applicant must be 18 years old or older, make at least $800 a month, be currently employed, and have an active checking account in good standing.
BillsHappen is another online marketplace that matches borrowers with the best lenders for their circumstances. This marketplace boasts a hassle-free experience, easy application, and fast funding.
Things to consider:
- Next-day funding is available, depending on the lender.
- The application process takes around five minutes to complete.
- Loans may have variable or fixed interest rates and different terms, based on the lender.
- Personal loans up to $5,000 are available and can be used for any reason.
- Some lenders offer short-term installment loans with flexible monthly payments and dates.
- To qualify, the applicant must be 18 years or older and provide a social security number, driver’s license, contact information (phone, address, email), valid checking or savings account, and proof of employment.
CashUSA is one of the largest online lending networks for consumers with bad credit or a discharged bankruptcy. This platform has successfully matched thousands of consumers with lenders to help them secure financing in the form of short-term loans and personal loans.
Things to consider:
- Personal loans for people with bad credit range from $500 to $10,000.
- Applicants may prequalify to help determine their eligibility.
- Funds may be available within one business day and can be used for anything from debt consolidation to auto repairs to home improvement
- The average APR (annual percentage rate) for borrowers with a discharged bankruptcy is between 28% and 35.99%.
- Loan terms range from 3 to 72 months.
- CashUSA may share user data with third-party sources for advertising and lending purposes.
- To qualify, an applicant must make at least $1,000 a month, provide a valid social security number, be at least 18 years old, and have an active bank account.
Like most of the options on this list, BadCreditLoans is a free, online marketplace. Most of the lenders in the network are reputable, licensed, and offer personal loans to borrowers with bad credit and delinquencies on their credit report.
Things to consider:
- Loan terms, interest rates, and fees vary based on the lender.
- Loan amounts range from $500 to $10,000.
- Interest rate varies from 5.99% for borrowers with good credit to 35.99% for borrowers with bad credit or a recently discharged bankruptcy.
- The average personal loan term ranges from three months to five years.
- BadCreditLoans does have some predatory lenders like tribal payday lenders in its network.
- This marketplace may be compensated for sharing user data to in-network and third-party lenders. It may also share data with finance or credit companies.
- Eligibility requirements vary.
A major lender network, PersonalLoans works with borrowers with bad credit, a history of bankruptcy, foreclosure, and accounts in collections.
Things to consider:
- Loan amounts range from $500 to $35,000, depending on the individual’s creditworthiness.
- Interest rates range from 5.99% to 35.99%. However, the average interest rate for borrowers with a discharged bankruptcy or poor credit is between 28.99% and 35.99%.
- Loan terms vary from 3 to 72 months.
- The platform does not charge any hidden fees or upfront costs, but individual lenders may charge loan origination fees, early repayment fees, or late fees.
- Borrowers may receive their funds within one business day.
- There’s a separate section on the platform with lenders geared towards borrowers with good or excellent credit.
- To qualify, the applicant must have a source of income, no active or recent bankruptcies, low DTI ratio, an active checking account, and no accounts in collections. They must also be 18 years or older and have a social security number.
Established in 1998, CreditLoan is a free-to-use online platform that matches borrowers with lenders based on their individual situations. CreditLoan also offers other resources and strives to improve people’s financial education and help them achieve long-term financial sustainability and freedom.
Things to consider:
- Personal loans range from $250 to $40,000.
- Applicants may be approved immediately.
- Loans come with different interest rates and terms based on lender.
- Funds may be available within 24 hours, depending on the lender and the borrower’s financial institution.
- Borrowers may only take out one personal loan at a time.
- Individuals with an active bankruptcy are unlikely to qualify. However, the platform does work with those with a fully discharged bankruptcy.
- To qualify, a borrower must have an active bank account in good standing, proof of income, and proof of identity.
Founded in 1997, CashAdvance is a well-established, large network of lenders that offer short-term loans to people with a recently discharged bankruptcy or poor credit.
Things to consider:
- Loan products range from $100 to $1,000.
- The interest rate varies from 200% to 2,290%.
- Depending on the lender and loan product, the loan terms vary. Most loans have a 15- to 30-day repayment period.
- CashAdvance is a free online service that connects borrowers with lenders who offer short-term loans, traditional loan products, and lines of credit.
- Some of the lenders in this network offer installment loans, but many of the loan products are payday loans.
- To qualify, a borrower must be 18 years old or older, have a social security number, make at least $1,000 a month after taxes, and have a valid checking account.
- What to do if your personal loan application is rejected
Other options if you’ve been rejected
If you’ve been rejected for a personal loan, don’t immediately turn to payday loans for bankrupts. More than 90% of payday loan borrowers have ended up regretting taking out their payday loan. Instead, here are some alternative ways to help rebuild your credit and increase your chances of qualifying for a personal loan in the future.
Credit-builder loans are a type of reverse loan meant for individuals who need to either build or repair their credit. Unlike with a traditional loan, the borrower does not receive the money for the loan upfront. Instead, the lender keeps the money in a secure account while the borrower makes monthly payments on it. Because of this, there isn’t usually a credit check.
As long as the borrower makes regular payments on an established payment plan, the lender will report their activity to the credit bureaus, thus helping them build credit. Once the borrower has paid off the loan balance (including any interest), the lender transfers the money over to them to do with as they see fit.
Many banks, credit unions, and online lenders offer credit-builder loans. Before choosing a lender, consider the following:
- Loan terms, interest rates, and hidden fees
- Minimum and maximum loan amounts
- Cost of monthly payments
- Whether the lender reports to the credit bureaus
- Credit-builder loans are a good alternative to personal loans for those who don’t currently qualify for these loan products. They’re also a much better alternative to payday loans for bankrupts since they’re more affordable and help the borrower build credit and establish a small amount in savings.
If you’re thinking about getting a credit-builder loan, check out these lenders:
Self Financial, Inc. offers credit-builder loans and secured credit cards to people who need help building their credit. These loans range from around $500 to $1,500 with an average APR of 15.65%. Loan terms range from 12 to 24 months. Downside: Self charges a one-time fee to open an account.
This lender offers an array of options to help consumers build their credit, especially after a bankruptcy. Loan amounts through Credit Strong vary, but the maximum loan term is five years. APR ranges from 5.85% to 14.89%. Downside: There is a one-time administrative fee and a monthly fee of $15 or $30.
Interested in getting a credit-builder loan and want to know more? Check out this video:
A secured loan is another way for people to build credit, even after bankruptcy.
With a secured loan, the borrower must put up some form of collateral equal to or close to the amount of the money from the loan. However, if the borrower defaults on their loan, the lender can take the collateral to cover the deficit.
If you need to start building credit or increase your credit score, a secured loan is a good way to do it. Reputable lenders will report any payment activity on the loan to the credit bureaus, which helps build credit. Secured loans also have lower interest rates than traditional loans.
There are many highly-rated lenders offering secured loans, but here are two of the best ones.
An online lender, OneMain Financial works primarily with bad-credit consumers. It doesn’t require a credit score, though it does come with higher interest rates (18.00% to 35.99%) than other lenders. OneMain Financial offers secured loans ranging from $1,500 to $20,000 with 2 to 5-year terms. Downside: The origination fee ranges from 1% to 10%.
Upgrade offers secured loans and joint loans to borrowers with a 560+ credit score. The APR on secured loans ranges from 5.94% to 35.47%. Loans start at $1,000 and go up to $50,000 with 2 to 7-year terms. Individuals with a higher credit score may use their vehicle as collateral for a better rate. Downside: The origination fee ranges from 2.9% to 8%.
Secured credit card
With a secured credit card, the borrower puts up some form of collateral — usually a cash deposit — that serves as their line of credit. This amount is usually between $300 and $2,500.
Once the money is in the account, the account owner may then use the secured credit card like they would any other credit card. Any activity on the account is reported to the credit bureaus to help the consumer build credit.
Some financial institutions or online lenders offer borrowers the option to upgrade their secured credit card into an unsecured credit card for a higher credit limit. In both cases, the card will accrue interest if there’s a balance on it at the end of the month.
Here are two highly-rated options for secured credit cards:
If you already have an established credit-builder account in good standing with Self, then you may automatically qualify for a secured credit card. Self’s secured credit cards have a variable APR of 23.74% variable APR and a minimum $100 deposit. Downside: $25 annual fee.
OpenSky offers secured credit cards ranging from $200 to $3,000 to borrowers with poor or no credit. The average APR is 17.39%. Downside: $35 annual fee.
Peer-to-peer (P2P) lending allows individual consumers to get loans directly from investors without using a third-party financial institution. P2P lending is a solid option for those who may not be eligible for traditional loan products but who still need to build their credit or secure financing.
Loan terms and rates vary across P2P platforms and websites since each provider sets its own loan rates and terms. However, these rates are almost always more reasonable than other short-term loans or payday loans for bankrupts.
There are several online platforms that offer P2P lending, such as Upstart, Peerform, and Lending Club. For those who prefer a more personal experience, the r/borrow subreddit also offers P2P lending.
Add a cosigner or guarantor
If you do not qualify for a personal loan or other loan product on your own, you may have better luck with a cosigner or a guarantor. That’s because these act as a sort of assurance to the lender that you will repay what you owe.
What’s the difference? A cosigner would be held responsible for payments throughout the loan’s duration. A guarantor will be liable for the full amount if you default.
Anyone can be a cosigner, but the better their credit score, the better the rates for the loan. Ideally, the cosigner will have good or excellent credit (670 and up).
A guarantor must be a U.S. citizen, over age 21 and have excellent credit and a history of financial stability. It also helps if the guarantor is a homeowner.
What is a payday loan?
Payday loans are small loans that give the borrower immediate cash. The borrower must repay the short-term loan in a lump sum, usually on or before their next payday. Payday lenders typically have minimal requirements and don’t check the borrower’s credit, making them easy to qualify for.
There are approximately 23,000 payday lenders in the United States, but some states have banned payday lending. There are some good reasons for this. Payday loans are high-risk and come with a slew of problems.
For one thing, they have sky-high interest rates in the triple digits. For another, they have incredibly short repayment terms (usually two to four weeks). Due to these factors, many people who take out a payday loan can’t afford to pay it back on time.
Because of this, they end up taking out another payday loan to pay off the first. Each new loan comes with its own set of fees, however, making it harder and harder to pay back each new loan. On average, payday loan borrowers take out 10 loans before they manage to get out of debt. This is what’s known as the payday debt trap and is the payday lending business model.
What’s the difference between Chapter 7 and Chapter 13 bankruptcy?
Filing for bankruptcy is complicated and before taking any action you should consult a nonprofit credit counselor and a bankruptcy attorney (most places offer free initial consultations) to review your options before you make a decision on whether to file bankruptcy. The choices you make will impact your credit for as long as 10 years. It can also get expensive.
However, there are usually two filing options: Chapter 7 and Chapter 13. There are a few key differences.
Chapter 7 bankruptcy
A Chapter 7 bankruptcy wipes away nearly all consumer debt, giving the individual a clean slate. However, Chapter 7 may result in the loss of certain assets like a home or, if you have a title loan, your vehicle. This type of bankruptcy stays on the individual’s credit report for up to 10 years.
Chapter 13 bankruptcy
On the other hand, a Chapter 13 bankruptcy doesn’t necessarily wipe out the existing debt. Instead, the consumer must follow a 3- to 5-year repayment plan and make payments towards their creditors. Once this period is over, the remaining debt is cleared and the bankruptcy is discharged. Chapter 13 remains on the credit report for up to 7 years. Most Chapter 13 filers won’t pay much toward unsecured debt, such as credit card balances, medical bills, and personal loans unless the unsecured debt falls into the priority debt category. (For example, child support or IRS obligations.) In those cases, you’ll pay the entire amount in full.
Regardless of the type of bankruptcy, it can be extremely difficult to qualify for any loan product. However, some lenders are more willing to work with people who’ve filed for a Chapter 13, provided they’ve followed their repayment plan.
How long do I have to wait after bankruptcy proceedings to get a loan?
After filing for a Chapter 7, you must wait at least four years after the court discharges or dismisses the bankruptcy to qualify for most conventional loans. Even then, many lenders will reject your application if the bankruptcy still appears on your credit report when they run a hard or soft inquiry.
The wait time also depends on the type of loan. For example, it may be possible to get a credit card relatively quickly after bankruptcy. Since you can’t file for bankruptcy again for at least a few years after the previous one is discharged, this provides lenders more security that you’ll make payments to them.
If you’re trying to get an auto loan through a subprime lender, you may be able to do so soon after bankruptcy as well. However, these loans typically come with unfavorable terms and high interest rates.
Finally, you may be able to get a mortgage loan, depending on the lender and the type of bankruptcy. Some FHA-insured lenders will work with borrowers while they’re still working on their Chapter 13 repayment plan. These lenders may also provide loans as soon as two years after filing Chapter 7.
However, for a traditional mortgage loan, you may need to wait at least four years after the bankruptcy is completely discharged or dismissed.
The bottom line
Ultimately, there are several alternatives to payday loans for bankrupts such as personal loans. If you don’t qualify right now for a personal loan, or if the terms are unreasonable, then consider getting a secured credit card, secured loan, or a cosigner for better rates. This will also help you rebuild your credit so you qualify for financing in the future.
Yes, but you may have to wait several years after the bankruptcy is discharged. If you need a mortgage sooner, you may be eligible for an FHA-backed mortgage loan in as little as two years after bankruptcy.
While you are unlikely to qualify for an auto loan with most lenders, there are subprime lenders who may be willing to work with you. However, these lenders typically come with higher fees.
This depends on several factors, such as the type of bankruptcy, your credit score prior to filing, and your debt-to-income ratio. If you had good or excellent credit prior to filing, it will probably experience a major drop. However, if your credit score was already bad, then the change may not be as significant.
On the plus side, if you have multiple accounts in collections, poor credit, and unmanageable debt, then filing for bankruptcy may actually help you rebuild your credit sooner. This is because bankruptcy ultimately lowers your DTI ratio and removes delinquent accounts that are affecting your credit.
It is possible to wipe out student loan debt by filing for bankruptcy. However, it is often quite difficult since you must prove to the court that repaying the student loans will cause “undue hardship” on you and your family. Whether or not the bankruptcy eliminates the student loan debt will depend on the discretion of the court and your individual case.
Yes, but expect there to be a waiting period after the bankruptcy is discharged. Some loans may be easier to get than others, such as secured personal loans, subprime auto loans, and FHA-insured mortgage loans.