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Personal Loans and Grants for Felons
Get funds to reboot your life, pay off debts, go to school and more.
More than 10,000 formerly incarcerated people are released from state and federal prisons every week, for a total of over 650,000 per year, according to the US Department of Justice (DOJ). Having a criminal record can damage your finances and your ability to start fresh.
“Proving financial stability after years outside the system is the biggest challenge,” says Chris Heerlein, CEO at REAP Financial, an investment firm that has worked with clients reentering the community after prison. “Virtually every criminal conviction results in the type of financial distress that results in collection actions or evictions or long job gaps that show up on credit reports and result in loan denials.”
Fortunately, there are many resources — including reentry programs, state and local grants, student loans, personal loans and more — to help you get back on track.
Types of personal loans for felons
Rebuilding isn’t just about finding work. You may need more than a job to get fully on your feet. The type of personal loan you go for depends on your specific situation, but here are some options to consider.
Unsecured personal loans
One of the most common options is unsecured personal loans, meaning they don’t require collateral to qualify. You’ll typically need good credit, but some lenders, like Upstart, for example, also consider your education and work experience when determining loan approval.
Secured personal loans
If you have something of value — such as a car or other asset — a secured loan could be a good option. They’re not as common as unsecured loans, but you can usually get a better rate. However, you risk losing the asset if you can’t make your loan payments.
Debt consolidation loans
Another type of unsecured loan, debt consolidation loans can help you pay off higher interest debt and simplify your finances with a single monthly payment. Plus, some lenders pay your creditors directly, which may make it easier to qualify since they know how the loan funds are being used. But make sure the interest rate on your consolidation loan is less than your current rates, or it won’t save you any money — and could potentially cost you more.
Bad credit loans
If you’ve been away for some time, traditional loans may not be an option just yet. However, some lenders specialize in loans for bad credit that can get you over the hump and help you build a credit history for the future. But you’ll pay higher rates for bad credit loans, so it’s best to repay them early if possible.
Credit union loans
If you have an established relationship with a credit union, you might qualify for a personal loan with better rates than a traditional bank or online lender. But you may not be eligible until you’ve been a member for anywhere from 30 to 90 days.
Federal student loans
People with a felony conviction may still qualify for federal student loans and other federal student aid such as grants. But even if you’re not eligible for federal aid, you should still fill out the Free Application for Federal Student Aid (FAFSA). Most states and schools use the information on that form to award non-federal aid, too, so it’s possible you might be able to get some of those funds.
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Eligibility requirements for a personal loan
Fortunately, having a felony conviction shouldn’t be an obstacle to getting a personal loan, says Heerlein. “Lenders rarely check criminal backgrounds, but your credit file speaks for itself. For the most part, banks and credit unions care more about credit scores, payment history and income than legal records.”
Each lender has specific requirements to qualify for a personal loan, but here are the basic criteria you’ll need to meet.
- Acceptable credit score. Lenders vary widely with credit score requirements — many want to see scores of at least 600 or more, while others consider lower credit scores.
- Proof of income. Most commonly, you’ll need to provide W-2s or pay stubs to verify your income. But if you’re self-employed or a gig worker, you’ll likely need to show alternative documentation, such as bank statements showing regular deposits.
- Have a low debt-to-income (DTI) ratio. In general, lenders prefer a DTI ratio of 43% or less for a personal loan — although 35% or lower is even better. You can calculate your DTI by dividing your monthly debt payments by your gross monthly income.
- At least 18 and a US resident. Most lenders require you to be the age of majority in your state and either a US citizen or permanent resident to qualify.
How to apply for a personal loan
Follow these steps to apply for a personal loan.
- Calculate what you can afford. Check your budget to see how much you can comfortably afford in repayments each month.
- Check your credit. Get your free credit reports to see your scores. This can help guide you toward lenders that work with borrowers in your credit range.
- Compare multiple lenders. Compare rates, fees, loan terms and requirements to qualify with a few different lenders to find the best deal for your situation. Or you could use a connection service like Credible to compare multiple lenders in one place.
- Apply. Fill out the loan application online, by phone or in person, depending on the lender, and submit any required documentation.
- Review and sign. If approved, review your loan agreement carefully, paying close attention to rates and loan terms, before signing.
Depending on the lender, you could receive your loan funds within one to three business days.
How to improve your chances of loan approval
There are a few things you can do to improve your chances of getting a loan, although some options may require putting your plans for a loan on hold for a bit.
- Get a cosigner. Ask a friend or family member with good credit to cosign your loan. This option is one of the fastest ways to boost your chances, but it is a big favor to ask of someone.
- Use collateral. Borrowers with something of value to pledge as collateral are more likely to receive loan approval, but it puts your asset at risk.
- Build your credit. A good credit history is one of the most important factors to ensure loan approval and get more competitive interest rates. However, building credit can take time.
“Small, structured loans bring the best opportunity for rebuilding,” advises Heerlein. “Secured credit cards, credit-builder loans and microloans from CDFIs or nonprofits are more affordable and are intended to help restore creditworthiness.”
3 types of grants for felons
You’ll find many grants from the local, state or federal government — but private and community organizations may have options too. Unlike loans and other types of financing, you do not have to pay them back.
Federal government
A great place to start is Grants.gov when it comes to looking for grants from the federal government. Grants are available to small businesses and individuals, and a criminal record won’t automatically disqualify you. This website can also help you determine if you’re eligible, show you how to apply and give you tips on writing a grant proposal.
If you have low income and need help with basic necessities — like food, medical expenses, housing and other costs — the federal government also offers benefit programs to help lower your expenses and become more self-sufficient.
Private grants
You can find private grants awarded by foundations, nongovernmental agencies and corporations. They are typically easier to get than federal grants, and you may be able to get your funds more quickly. Because these grants tend to focus on local communities, there can be fewer applicants than for federal grants, so you may have a better chance of receiving funds.
Federal grants for students
If you can show financial need and haven’t earned an undergraduate, graduate or professional degree, you may be eligible for certain grants from the federal government, such as Pell Grants for felons, among others. While awards typically won’t cover the full cost of attendance, proving you’re eligible for one can allow you to qualify for other need-based student financial aid.
Additional resources for people with a felony
It can take more than just financial resources to be successful. You may find other forms of assistance through these programs.
- Inmates to Entrepreneurs. Take an eight-week course to get help starting or improving your own small business. It’s free to anyone with a criminal record, and you can sign up anytime online. It also offers a shorter course called Starter U, which can help you decide if entrepreneurship is the right path for you.
- State reentry programs. Check with your state government to find out about its reentry program options. You may be able to get assistance finding a job, housing, continuing education, counseling and more.
Alternatives to personal loans for people with a felony record
If a personal loan isn’t in the cards, consider these alternatives.
- Cash advance apps. For formerly incarcerated individuals who only need small loans — typically around $250 to $500 — cash advance apps might be a good option. These apps don’t care about your criminal record or do credit checks, but watch out for monthly fees.
- Credit card cash advance. Rates are high for credit card cash advances, but they can fill an immediate financial need in an emergency.
- Home equity financing. For homeowners, a home equity loan or home equity line of credit (HELOC) might be worth looking into. Rates are better than most loan options, but it puts your house at risk and you may need a decent credit score to qualify.
- Business loans. If you plan to use the loan proceeds to start a business, consider business loans and grants for felons to explore your options for financing a new venture.
What to watch out for when taking out a loan
As you shop around for a loan, look out for these potential red flags.
- Guaranteed approval. There is no such thing as a “guaranteed approval” loan — even payday lenders need to verify your income and identity.
- Poor customer reviews. Every lender has some negative reviews, but if the bad outweighs the good, you may want to keep looking.
- Not up front about rates. Legit lenders are clear about how much they charge for a loan. If a lender isn’t up front about APRs, it’s time to look elsewhere.
- Pushing you to borrow more. Some lenders may try to persuade you to borrow more than you asked for — a big warning sign.
Frequently asked questions
Can a convicted felon borrow money?
Yes! Most lenders don’t check your criminal history because their main concern is your ability to repay the loan.
Are there Pell Grants for felons?
You may be eligible for a Pell Grant to help pay for school after you’ve been released from prison. Or, if you’re still incarcerated, you may also be eligible for a Pell Grant as long as you’re enrolled in an approved prison education program.
Can a felon get an FHA loan?
Possibly. People with a felony aren’t specifically prohibited from getting an FHA loan, but it may depend on the lender, the nature of the felony and how long ago you were convicted.
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