Payday Loan Alternatives When You Have Bad Credit
When you have bad credit, the options for you to secure money quickly via a loan are not always plentiful or high-quality. The “payday” loans you can get are often expensive, predatory, or a mixture of the two. The problem is that many bad credit borrowers cannot simply get a standard loan like borrowers with good credit.
However, that doesn’t mean people with bad credit absolutely need to take these lackluster payday loans in order to secure money. There are some solid alternatives out there that are not only cheaper but can also be easier to secure.
In an effort to help those who need some extra money but have bad credit, in this article, we will take a look at what payday loans are, why they aren’t always a good choice, and what other options are out there for you.
What is Bad Credit?
Before we look at payday loans and the other options at your disposal, how are you supposed to know if you have bad credit or not? Well, in the United States, credit scores generally range from 300 on the low end to 850 on the high end. Anything over 700 is considered good credit, while anything below 600 is often seen as bad credit. So, if your credit score is less than 600, you should take some steps to build it up to be able to get more affordable loans.
Looking for some simple ways of improving your credit score? Check this out.
What Are Payday Loans and Why Are They Bad?
Now that you know what qualifies as bad credit, what is a payday loan? A payday loan is a form of short-term loan that a lender will offer a customer based on their credit history and income. They are often quick and easy to get, as all the lender needs is proof of your income and some information about your credit profile.
Trying to understand your credit report? Read this for some information.
These loans will often be high-interest in return because they can put near-immediate cash in a person’s pocket. That’s why payday loans are also commonly known as “cash advance loans”. There is a good chance your city or town has multiple physical locations where you can get these loans.
Payday loans are typically secured by someone who needs money right away, but their next paycheck from work won’t arrive for a few days or weeks. While this might seem like a decent option if you need quick cash, it really isn’t, at least for most people. That’s because payday loans have a reputation for being predatory, as well as having hidden or added fees that the borrower might not be aware of immediately.
The first reason why payday loans are a bad idea is because of their interest rates, which are extremely high. The rates on these loans can sometimes reach up to 500% APR! While many states have rules about limiting the interest rate, some payday loan lenders fall under specific exemptions that allow them to continue offering such high-interest loans.
If you can’t afford to make your loan payments on time, this could happen.
Another bad thing about payday loans is that they are marketed to the person who has difficulty making ends meet. Realistically, securing these loans makes that notion even harder, as you are giving away a large portion of your next paycheck for some immediate money.
The third reason payday loans are bad is because of something that is often referred to as the “payday loan cycle of debt”. The payday loan cycle of debt is when someone is caught in a loop of needing a payday loan for an emergency, being unable to repay that loan due to the high interest and fees, and thus needing to get another to pay back the first. This can be a very tough cycle to break and once/if you do, it can be difficult to recover from.
To learn how you can get out of a revolving debt cycle, click here.
Alternatives To Getting a Payday Loan
As you know by now, these payday loans can be very predatory in nature and thus, should be avoided if possible. However, what if you really need the money? Those with bad credit don’t have a ton of options at their disposal, so it can be a bit worrisome. In that case, here are a few alternatives for you:
Borrow From a Family Member or Friend
While some of us might not want to swallow our pride and ask, it can often be a good idea to try it out. First of all, many family members or friends will be absolutely willing to help you out in your time of need. In addition to that, smaller or short-term loans can often have relatively high fees, which makes this option all the more attractive. Of course, don’t take advantage of their kindness and ensure that you pay them back in full when you are able to.
Want to know if your relationship is financially successful? Look at this.
Speak With a Private Lender
If your friends and family members are unable to help, another choice would be to speak with a private lender. There are likely dozens of private lenders in your local area, who are usually comfortable doing both secured and unsecured loans. They likely have a decent option for you, so be sure to reach out to them and see how they can help.
Here are some common reasons why people turn to Rebound Finance for help.
Ask Your Bank
While banks aren’t always the best option for unsecured loans when you have bad credit, but they are worth a shot, especially if a payday loan is your only other option. If not, banks might be willing to lend you money when the loan is secured against one of your assets. If your credit is still insufficient, getting someone to co-sign the loan can make things easier.
Utilize Your Home Equity
If you own a home and have some equity, it can be relatively easy to come up with ways of getting a little extra money. You can likely get a line of credit, get a second mortgage or potentially even refinance your mortgage. Of course, before you do any of these, you should ensure that you really need the money.
Want to know if you can get a home equity loan with bad credit? Find out here.
Avoid Payday Loans Whenever Possible
Payday loans are almost always a bad choice when it comes to loans. Finding an alternative option that you can afford to pay off and that won’t ruin your finances, doesn’t need to be an impossible task. Rebound Finance can help you find the right loan option that meets and your wants and needs.