Subprime personal loans provide financing to people with poor credit who cannot qualify for a conventional prime-rate loan. Borrowers who have poor credit have a higher risk of defaulting on loans, so lenders protect themselves by adding charges to the loans. These charges come in the form of higher interest rates, longer term lengths, and higher financing fees.
Read on to learn how subprime personal loans work, the different types of loans, some alternatives to these high-interest loans, and whether they might be an option for you.
Key Points
• Subprime personal loans are designed for individuals with credit scores below 620, providing access to funds.
• Subprime personal loans can give borrowers a lump sum of cash but typically at a high interest rate and with fees to protect lenders.
• Fixed-rate loans offer a consistent interest rate, ensuring stable monthly payments throughout the term.
• Adjustable-rate loans have a variable interest rate after an initial fixed period, leading to uncertain future payments.
• Proper management of subprime loan payments can improve credit scores, while missed payments can harm them.
What Is a Subprime Personal Loan?
A subprime personal loan is a loan that caters to borrowers with subprime credit, who are considered to be at a high risk of default. Credit scores typically run from 300 to 850 (that’s the range for the most popular FICO Score). According to the Consumer Financial Protection Bureau, a subprime credit score is below 620. A subprime lender will usually charge a higher interest rate and fees to cover the cost of their risk.
There are fairly rigid credit score requirements for a personal loan. The Consumer Financial Protection Bureau lists five credit score levels; the first column shows what type of loan someone will qualify for.
| Credit Level | Credit Score |
|---|---|
| Deep subprime | Below 580 |
| Subprime | 580–619 |
| Near-prime | 620–659 |
| Prime | 660–719 |
| Super-prime | 720 and above |
Whether they are new to accessing credit or have not managed credit well in the past, a borrower with a FICO® score below 620 will find it difficult to secure a loan from a traditional lender. Many online lending platforms allow consumers to search a network of subprime personal loan lenders to find the best deal. Borrowers submit a loan application online to prequalify.
In general, subprime loans have certain characteristics. They may require a larger down payment for a mortgage or auto loan. For example, someone with a fair credit score who takes out a car loan may have to pay 5% down, whereas someone with poor credit might have to put 10% down. A subprime loan, however, may come with an adjustable interest rate or a fixed interest rate, and the term may vary from several months to several years.
Types of Subprime Loans
There are three main types of subprime loans: interest-only, fixed-rate, and adjustable-rate.
Interest-Only Subprime Loan
An example of an interest-only loan is an adjustable-rate mortgage where the borrower pays only the interest for the first few years before beginning to cover some of the principal. If interest rates have gone up at the end of this period, the payments can become much higher and more difficult to afford.
| Pros of Interest-Only Subprime Loan | Cons of Interest-Only Subprime Loan |
|---|---|
| Initial monthly payments are lower | The borrower is often not aware that interest rates could skyrocket in the future |
| An interest-only loan can be paid off faster than a traditional loan | Borrowers may rely on having more income in the future to meet the higher payments |
| Flexibility: Borrowers can use extra cash to pay off the principal earlier | In the case of a mortgage, if housing prices fall, the mortgage debt may exceed the value of the home |
Fixed-Rate Subprime Loan
Fixed-rate subprime loans allow the borrower to lock into a fixed interest rate for the life of the loan. The monthly payments don’t change, so there are no surprises for the borrower. However, the terms of these loans are longer, and borrowers pay more interest over the life of the loan.
| Pros of Fixed-Rate Subprime Loan | Cons of Fixed-Rate Subprime Loan |
|---|---|
| Interest rates are the same for the life of the loan | Long repayment period (30 years or more), so the borrower pays more for the loan |
| Monthly payments don’t change | No flexibility |
Adjustable-Rate Subprime Loan
Interest rates on an adjustable-rate subprime loan are fixed for an initial period. After that, the interest rate will become variable, and your monthly payments will go up and down with market interest rates.
| Pros of Adjustable-Rate Subprime Loan | Cons of Adjustable-Rate Subprime Loan |
|---|---|
| Interest rate is fixed for an initial period | Once the initial period is over, the interest rate can increase |
| Interest rates can be low initially, so the borrower has cash that can be invested elsewhere | Budgeting is difficult because future payments are uncertain |
Pros of Subprime Personal Loan
The pros of a subprime personal loan can be summed up as “perceived affordability” for those who can’t qualify for prime personal loans.
Adjustable Interest Rate
Adjustable interest rates are a double-edged sword. On the one hand, subprime loans with an adjustable rate are attractive because the initial rate is low. This frees up cash that savvy borrowers can use to earn money elsewhere or pay off the loan principal sooner. However, once the initial period is over, the rate can skyrocket with market rates.
May Enjoy Flexibility of Funding
The lump sum a personal loan provides can usually be applied to help the borrower’s finances in a variety of ways, from financing a wedding to paying off a major car repair or dental bill. Also, if the rate is fixed and gets locked in as interest rates climb, this can benefit the borrower, keeping monthly costs low and having some wiggle room in one’s budget to pay down debt.
Cons of Subprime Personal Loans
The perceived affordability of subprime personal loans comes with trade-offs.
Higher Interest Rate
Subprime loans have significantly higher interest rates than prime loans. That means a subprime borrower can pay much more in interest over the life of their loan.
For example, the average personal loan rate for a borrower with a credit score of 720 to 850 in January 2025 was 11.30%, while the rates were 20.28% for those with credit scores between 300 and 629. So if you are a subprime borrower and see offers saying rates can range from, say, 8.00% to 35.99%, expect that you may qualify for APRs at the higher end.
Also note that an adjustable rate loan may have a low initial interest rate, but higher rates can increase your monthly payments substantially. How economic fluctuations will impact your loan can be hard to predict.
Higher Fees
Subprime personal loan lenders charge higher fees to subprime borrowers to cover the cost of potential default.
| Pros of Subprime Personal Loan | Cons of Subprime Personal Loan |
|---|---|
| Flexibility from adjustable interest rates | Higher interest rates |
| Access to cash when needed | Higher fees |
What Credit Score Is Required for a Subprime Personal Loan?
According to the Consumer Financial Protection Bureau, credit scores of 619 and below qualify for a subprime personal loan. Here are the typical ranges of credit scores, which span from 300 to 850:
• Under 580: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very good
• 800 or more: Exceptional or excellent
The average credit score in the U.S. at the end of 2024 was 717.
The Impact a Subprime Personal Loan Has on Your Credit
Taking out a subprime loan will not affect your credit score. When a lender runs a credit check on a potential borrower, it affects the credit score by fewer than five points, but that is the same regardless of the type of loan.
On the other hand, how you manage the payments can impact your score. Making regular payments can build your credit because it contributes positively to your payment history. You may then be able to qualify for a prime-rate loan once you have paid down your debt.
Top 3 Subprime Loans
Here are three subprime lending platforms to consider, drawn from online research conducted in early 2025. Lending platforms allow borrowers to search a network of subprime lenders for the best loan terms.
Upstart.com
Loans are available from $1,000 to $50,000. The subprime personal loans can be used as debt consolidation loans or to finance a wedding, vacation, or medical expense. The origination fee can typically range from 0% to 10% of the loan amount, withheld at the start of the loan term, which is usually between 36 and 60 months. Interest rates as of January 2025 ranged from 7.80% to 35.99% APR (annual percentage rate).
Upstart says that one credit report of 300 can help an applicant qualify, and those who are too new to credit to have a score may still be able to access funds.
OneMain Financial
Loans are available from $1,500 to $20,000. Funds are deposited into the borrower’s bank account the next business day. APRs ranged from 18.00% to 35.99% in January 2025, with terms of 24 to 60 months. Origination fees can be a flat fee of up to $500 or up to 10% of the loan amount.
While they don’t publish a specific minimum credit score to qualify, OneMain Financial says loans are available to those with credit scores in the fair and poor ranges.
PersonalLoans.com
Another approach can be to use a site that aggregates offers from a network of lenders. At PersonalLoans.com, loans can be available from $250 to $35,000. Funds are deposited into the borrower’s bank account within one business day.
Lenders from the site’s network offer APRs up to 35.99%, and loan durations are typically from 90 days to 72 months. Fees will vary, as will credit scores required, but a quick search can provide options for many subprime borrowers.
Getting a Subprime Loan
Subprime personal loan lenders list few requirements. But the process for a subprime loan is generally the same as the steps to apply for a personal loan with good credit.
1. Check your credit score. Look for any errors on your report that could be erased to boost your score. (Checking your own score doesn’t affect your rating.)
2. Compare multiple lenders. Shop around for the best rate and term. Your current bank or credit union might offer good subprime terms to existing account holders.
3. Select a lender. Make sure you understand the interest rate, repayment terms, and fees.
4. Gather your documentation. Scan them ahead of time for quick uploading. Applicants are typically required to show:
a. Proof of identity. Such as a driver’s license or passport.
b. Proof of address. You can use a utility bill, rental agreement, voter registration card, or insurance card for your home or car.
c. Proof of income. Choose from a paycheck, W2 or 1099, tax return, or bank statement showing paycheck deposits.
d. Current monthly expenses. Use a bank statement, and highlight your major monthly bills.
5. Complete the application. Once approved, you’ll need to sign for the loan to receive the funding.
Alternatives to Subprime Personal Loans
Subprime personal loans are not ideal. If you find yourself in the bad credit score range, consider alternatives like borrowing from friends or family, getting a cosigner to help you get a loan or credit card, or selling some of your assets to provide immediate cash.
For the future, try to build your credit by paying debts on time and lowering your debt levels, among other moves. In addition, it can be wise to check your credit report for errors that could be negatively impacting your score. This can have a positive impact on your efforts to access credit across many financial products, from personal loans to mortgages.
The Takeaway
Subprime personal loans are typically offered by online lenders that cater to customers with a low credit rating who cannot qualify for loans with conventional financial institutions. Subprime lenders charge high-interest rates and financing fees to cover the risk of default. You can choose a fixed or adjustable interest rate.
If you build your credit score higher, you may have more options, including personal loans with more favorable rates and terms.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
FAQ
What credit score do you need to get a subprime personal loan?
According to the Consumer Financial Protection Bureau, credit scores of 619 and below qualify for a subprime personal loan.
What are subprime personal loans?
A subprime personal loan caters to borrowers with subprime credit. That means they are considered at a high risk of default, so a lender will likely charge them a higher interest rate and fees to cover the cost of their risk.
What are the requirements for subprime personal loans?
To obtain a loan, borrowers must submit a loan application online and provide financial documents to show they can manage the payments.
Photo credit: iStock/shapecharge
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