Even if your credit is less than stellar, you may have more options for borrowing money than you think. Some aren’t that great, while others are also not great, but the trick is finding the right bad credit loan that’s right for you. Usually these loans are short-term, like payday loans, check advances, and title loans.
Although a payday loan may seem like a lifesaver if you need money right now, it’s actually going to turn into an anchor with high interest rates and size-able payments. The repayment terms of a payday loan usually require you to pay it off in about two weeks, or your next pay period. It sounds easy enough until you factor in the interest rates. According to the Consumer Financial Protection Bureau, the average annual percentage rate for a payday loan is — and this is no joke — about 400%.
And, under the terms of your agreement, you’ll have to pay your loan back in one lump sum rather than in installments. This means you not only have to turn over your entire paycheck, you have to cover the interest, as well. Instead, most payday loan borrowers — roughly 80%, according to a Pew Charitable Trusts study — have to let the loan roll over, often as many as right pay cycles, before they can full pay it off. Meanwhile, the interest continues to pile up.
A no credit check lender is exactly what the name implies: they don’t do a credit check on your history. A hard credit check, on the other hand, can lower your credit score. Most bad credit lenders will run a soft credit check on you to determine if you can repay the loan. Because of this, you’re less likely to be mired down in repayment hell, making endless payments, running up interest that never seems to knock down the amount of the debt.
If the amount you’re borrowing would be easier to pay off in regular installments, check into a bad credit installment loan. They’re like any traditional loan, with monthly payments and ongoing interest rates. What that means is, instead of a flat interest fee, paying off your loan early can actually save you money. Consult the terms of your agreement to make certain there are no prepayment penalties, however.
It’s never easy, but you might consider asking for a loan from friends or family. They’ll likely let you pay it off in installments, and may waive any interest fees, or at least ask for a smaller amount of interest than you’re liable to get from most lenders. Draw up a simple loan repayment agreement if you’d like, but make sure you’re diligent about paying off your loan. If your friends were good enough to lend you the money in the first place, they’re the kind of friends you want to keep around.
Of course, the simplest solution to borrowing is to not borrow, but start building up your own emergency funds. Eventually, you’ll want to have an amount equal to three months’ salary, should you or your spouse lose your job, but a good starting goal would be $1000, enough to cover most sudden expenses.