Yes, you can get a loan if you have bad credit, but it will cost you more than an excellent-to-good credit loan. That’s why it is always important to ask yourself why you need the money and if it is really worth the extra cost.
If you face a true financial crisis than borrowing money with a bad credit loan can be a smart decision. It’s all about the numbers. Will it cost less to get the loan than the consequences of not getting the loan?
Let’s start with an extreme example. Is your power about to get cut off? In this case, the cost of not paying the loan could be very high. First, you’re power gets cut off which is inconvenient, but it can also lead to having to pay your entire balance and putting down a deposit to restore your power. This can turn a $200 dollar bill into a $500 bill. However, if you get a bad credit loan — even a payday loan — you could end up saving money.
Maybe it costs you $50 bucks to borrow $200, which is a lot, but it’s still better than the other option — having to come up with $200 + an extra $300 more dollars.
Here’s another one. Say you wrote a bad check to buy groceries. Yes, that was a very bad decision, but sometimes it happens. And now you have to fix the problem. If the check goes through, and the bank pays it, which they may or my not do, you’re out about $39 extra. But if they charge you an overdraft fee and return it to the store, you’ll get hit with another fee. The store may even redeposit it and that will double your fees. So your $200 check has now cost you over $128. So in the end, the $50 for the $200 loan is a better choice.
Now what about a car repair? Is that a need or a want? Well, it depends. Do you need your car to go to work? If not, it’s better to just wait until you get paid to fix your car. But if you can’t work unless you fix your car, you’re in a pickle. It may make more sense to get the bad credit loan (even if it costs a lot) so you can earn money at your job or in some cases even keep your job.
Now, obviously you do not want to get a bad credit loan to go on a vacation or have a night on the town. In that case, it is much better to set a savings goal and go on the trip when you have saved up the money. That way you don’t pay any interest.
Before you seek a high cost payday loan or cash advance you should first try and apply at a credit union or even find a cosigner. This is someone that is on the hook to pay the loan if you don’t. So be careful when you choose this path as it can cost you a friendship if you don’t do your part and they have to pay your loan.
If you seek a cosigner make sure they know exactly what they are getting into.
The main reason payday loans get criticized is people look at them like normal loans. They figure out their Annual Percentage Rate (APR) and say that when you pay the loan off you got charged a crazy 400% APR. And this is true — if…you kept rolling the loan over-and-over for a whole year.
Some lenders will let you do that. But don’t. It may be tempting to just pay the interest, but in the end you’ll get caught in a debt trap. The truth is 1 out of 3 borrower continues to roll over the debt and way overpays for the loan. Another 1 out of 4 takes 80% of the year to fully pay off their loan.
This is not a smart way to handle a bad credit loan. Instead, you should ask yourself: What you can I do to pay the loan back by the due date? You can sell some items you don’t need any more, you can work extra hours, get a part-time job for a few months, or cut some unnecessary expenses from your budget.
Yes, you can get a personal loan if you have bad credit, but make sure you’re smart about it. Make sure you only use if for needs (true financial emergencies) not wants and have a plan to pay it back on time.
Some states have cracked down on payday lenders by capping interest rates, but 32 still allow the practice unabated. Bottom line? You’re best off avoiding payday loans.
Do not confuse auto loans that are meant for car buyers with auto title loans. Auto title loans require you to use your car as collateral in order to get a loan that can be used for any purpose. The amount of these loans varies, but it’s usually for much less than your car is actually worth. You usually won’t need a credit check to get an auto title loan.
Auto title loans have short terms (usually 30 days or less) and extremely high-interest rates that can range from 84% to more than 300%, according to the Center for Responsible Lending (CRL). These kinds of loans can easily trap borrowers who can’t afford to repay the loan in a cycle of debt as they continually renew the loan with interest-only payments. The CRL and Consumer Federation of America found that a borrower of a $951 auto title loan pays more than $2,000 in interest on a loan he or she renews eight times.
Many lawmakers have cracked down on auto title loans, which are now illegal in 31 states, according to the CRL. If auto title loans are still legal in your state, beware. Like payday loans, they simply aren’t a smart choice for those with bad credit.
Bad credit puts you in a vulnerable position when you’re searching for a loan. But just because your terms won’t be as favorable as they would be with excellent credit doesn’t mean you should accept any old offer. Keep your eyes peeled for these red flags while searching for the best bad credit loans:
Above all else, take a few minutes to check up on a lender yourself. Look at online reviews and the company’s Better Business Bureau profile. Be suspicious of consistently positive or negative reviews — the truth is probably somewhere in between. Double-check a company’s address, too. Being proactive at the beginning of your search can save you a lot of trouble down the road.
Interest rates are a big consideration when you’re searching for a loan with bad credit, but there are other factors to consider. Here are the criteria I focused on in my search for the best loans for bad credit:
Be sure to evaluate a range of choices when you’re searching for the best bad credit loans. You’ll want to find a lender who knows your credit score is just one part of a bigger picture, and you’ll need to make sure you understand what kind of loan you need, what kinds of loans to avoid, and how to avoid scams.
You’ll want to consider all of your options to find the best loans for bad credit that work well with your unique situation.