Getting A Personal Loan With Bad Credit
If you have bad credit, you already know that obtaining credit can be difficult if not impossible. So, when an emergency happens, how are you supposed to get credit. You usually do have options but you should be aware that you will probably pay more for the credit than someone with a perfect credit store. I am sure that you realize this , so let’s look at your options.
Alternative Bad Credit Lenders
Your main choice will be an alternative lender. These are lenders who offer services such as payday loans or cash advances. These types of loans can be obtained by just about anyone but they are not available in all states. States such as Arizona, Arkansas, Connecticut, Georgia and several others have banned or never authorized payday lending.
Why do some states ban these loans? The main reason for this is the effective interest rates. Lenders charge relatively high fees on short term loans. This makes the effective interest percentage rate to go into the hundreds. Some effective interest rates can be as high as 1000 percent when you factor high fees and short loan terms. Say, for example, you borrow $100 with a $20 fee due in two weeks. The total you would pay back would only be $120 but that is an effective interest rate of 521%. Many states consider this usury and thus ban the loans. In addition, many payday lenders have been caught using aggressive collection actions which has contributed to backlash against this type of lending.
If your state still allows payday loans, they can be a great tool but be careful. It is very easy to get into a loan trap where you end up using most of your paycheck just to pay off one loan and then need to take out another loan to get by. Make sure that a loan is an absolute necessity before you take it and make sure that you can budget to pay back the loan on your next check. If you are already living paycheck to paycheck, those loan fees can really hurt.
So, why can an alternative lender get you a loan even with bad credit? Easy, they look at less factors and their main requirement is that you show the ability to repay the loan. They want to see that you have a regular source of income that you can use to repay the loan and fees. As far as credit goes, many lenders do not use the major credit bureaus to get scores. They look at alternative credit reporting services and as long as you have not defaulted on a payday loan, you can probably get approved.
In House Lending For Bad Credit
This is another source of credit, in house lending. One source that comes to mind is auto repair. Many auto repair services will offer lending for their own auto repairs. In addition, many stores such as furniture or tire stores will offer in house financing, even if your credit is less than perfect or “bad”.
In house lenders can often offer financing for bad credit for several reasons. For automotive related lenders such as automotive repair services, defaulting on a loan may give them the right to seize your vehicle. Powers vary by state but in many states if you default on that auto repair bill, they can seize your vehicle and sell it to get their money. In addition, many of these loans will be secured loans where they can come and get the property back if you default on it. This is particularly true with furniture companies. Finally, from a risk factor, the risk is less for them. For example, they may be selling and financing you for $1000 in furniture. The furniture might have only cost them $500 though, so they are only risking losing $500.
The main thing that you need to watch out for with in house credit is high default interest rates and accumulating interest. Many in house financing will come with interest free deals for a set amount of months. The minimum payment required however is often not enough to pay off the loan when it is due. The result is usually the addition of accrued interest to your loan and possibly an increase to a higher default interest rate. Read the fine terms on all in house financing deals.
Pawn Shop Poor Credit Loans
A pawn loan is yet another option that can get you money in a hurry, with a catch of course. You must put up your stuff for collateral. You will risk losing your items if you default on this loan. Most states heavily regulate the pawn shop industry so be prepared to fill out some paperwork. Regulation is there to not only control the lending practice of payday lenders but also to account for property to make sure that it is not stolen.
A pawn loan will have fees but they are often less than those charged by payday loan lenders. Still, interest rates can get well over 100 percent so these loans are by no means cheap. You will find that most lenders will charge fees on the money borrowed as well as storage fees and documentation fees. They will add up in a hurry, guaranteed.
In addition to high fees, pawn loans have another rather large drawback. They are limited in value. What you can borrow is based on a percentage of the value of the property. So, if you want to borrow $100, you would need to put something up that is worth two or three times this amount. As you can guess, if you needed a lot of money you would need to put up something of quite high value. In addition, that value must be the used value, not what you originally paid for the item.
Title Loan Loan Companies
If you need a lot of money and have a paid off vehicle, this might be an option for you. You should use EXTREME caution with title loans though. Why? Well, if you default on one, they can and WILL take your vehicle. A very high percentage of borrowers lose their vehicle with one of these loans. What would you do if you lost yours?
Title loans can get you more money than most loan types because, chances are, your car is worth a good amount of money. The loans will also often be stretched over a longer period of time, which can give you longer time to pay. Interest rates will probably not be favorable though.
If you are considering a title loan, you should also consider your options. If you have a little time, perhaps you should simply sell your vehicle outright. You could then buy a cheaper vehicle or finance a new vehicle at an interest rate that would probably be less than the title loan rate. This takes time though and often time is of the essence.
Avoiding Bad Credit Loans Entirely
This is your best option if you can swing it. Avoiding loans in general is a good idea but high interest bad credit loans are particularly harmful to your financial picture. Consider the following ideas to avoid taking out a bad credit loan in the first place.
Cut Your Expenses
It is a boring expression but a true one, “a penny saved is a penny earned”. It remains one of the best ways to stretch your income. Just cut your expenses. Sounds hard but it is not if you have a budget. If you do not have a budget, make one so that you can see where your money is going. If you are blindly paying bills each month without writing them all down, you can’t possibly get your finances in order. Take a minute and write out every fixed bill you pay (money for rent, electric, insurance) and every variable expense (food, gas, entertainment). Put them in an orderly list, or better yet, a spreadsheet program.
Once you have your expenses in front of you, you can see where you can make cuts. Concentrate your efforts on the entertainment aspect of your budget first. Can you cut your cable or satellite out in favor of a cheaper subscription service? Can you downgrade to a slower but still effective internet package? Do you need to go out to lunch or dinner? Next look at your fixed bulls like car insurance and shop around for lower fees. There are probably many places that you can make cuts and you should audit your expenses every few months to see where you can find savings.
Another great way to save money is with apps or browser extensions. There are many that you can use to automatically credit you for coupons or otherwise find you savings. Honey, for example, is a browser extension that automatically saves you money when you shop online. Not sure if the price you have is the best online, the Honey extension will tell you. Look on your app store for other apps that you can use to help you budget or save.
Borrow From Other Sources
The best way to prevent having to take out a bad credit loan is to borrow from those who do not even check your credit, namely your friends, family or even your employer.
Friends and family is easy enough to imagine. Just ask your brother, sister or a parent if you can borrow money. In most cases, this will be an option to you, unless you have burnt this bridge int he past. When you borrow money, be respectful, courteous and take it seriously. Pay the money back just as soon as you can and avoid any luxury expenses in the meantime. If you can not borrow the entire amount that you need, consider using multiple sources, ie multiple family members. Also, keep in mind that a portion of the money you need is better than nothing. It would cut down on what you have to borrow from a bad credit lender and the fees that you would have to pay.
Borrowing from work is an option that you might not be familiar with but it can work. Chances are that your wages are delayed. This means that you are payed for work that you have already done and your employer owes you money for work that you have done. Some employers will advance you money on your next check because it is no risk to them. You have already earned the money in question and all it represents is a little extra paperwork. The only caveat to this is that you do not want to use it often and seem unreliable. Come up with a good reason to need the money, something that could happen to anybody.
Selling Your Property For Money
Finally, you have the solution of just selling something. These days this is easier than ever. It used to be that you needed to take out a classified ad in the paper or have an annoying garage sale to sell something. Now, you can simply list the item online in a matter of seconds.
Sell your item locally on Craigslist, 5Mile or one of a number of websites and apps for selling locally. Always use caution to avoid scammers when selling locally and always accept only cash. In addition, meet your buyer only in secure areas that are well lit. Police stations come to mind as good choices.
Sell your item online with venders like eBay. They will take a big 10 percent cut off of your profits but your item will probably sell for more online than it would in person. To make the most of online sales, post a good description of your item along with a lot of pictures.
Fixing Your Bad Credit
I would be remiss if I did not include ways to get out of bad credit trouble with this article. Fixing your bad credit and your dependence on bad credit personal loans will take two steps. First, you need to get your budget in order and start a savings account. Next, you need to take steps to increase your actual credit score.
Setting A Budget
List all of your fixed and variable expense on a spreadsheet. Then add in a set amount each month to go to savings. An amount as little as $100 a month will add up quickly if it is not touched. Make cuts as needed in your budget to make it realistic without cutting the amount that you save. Your first cuts should be for unnecessary items like entertainment. Cut meals outside of the home to save money and cut down on expenses like television. Doing this will probably balance your budget by itself and will have the side effect of putting you into a healthier lifestyle.
Fixing Your Bad Credit
Fixing your bad credit will take time but you can begin to make huge strides in a matter of months. The biggest thing that you can do is pay your bills on time. If you have a late payment on your report, it will probably take 6 to 12 months of regular payments to start to recover. After a year of regular, on time payments, your credit will move quite a bit in the right direction.
Next, you need to pay down any balances that you have on credit accounts. For the best score, your balances should be less than 30 percent of the credit available. Shoot for that as your goal although know that you get improvements every step of the way. A reduction of 90 percent used to 75 percent used, for example will cause a nice increase to your score.
Finally, you want to fix any errors on your account. Dispute errors and if a creditor can not prove that the information is correct, it must be removed. Look for sample dispute forms online. Remember, mot negative items that are over 7 years old must be removed from your report but they do not always automatically fall off. You will need to dispute them.