If you have ever tried to get a loan with bad credit, you know the challenges. Most traditional lenders don’t look any further than your credit score before letting you know they don’t give out Bad Credit Loans. What’s even more problematic is that your history of bad credit makes you a target for predatory lenders and scams. Finding a lender who gives you the same rates, fees, and flexibility on terms that they give people with good credit ratings simply isn’t possible. The most you can hope for is to find a company that is straightforward about their fees and who will work with you on getting you the terms you can afford.
Companies offering bad credit loans seem to pop up everywhere these days. They send you emails, call you on your home phone, and post ads everywhere you turn. Why? These companies know that people with bad credit will pay more to get the loans they need. They can charge you a high interest rate with the knowledge that you don’t have any other option. It’s good business for them, but it could mean serious financial problems for you.
What It Means to Have Bad Credit
Different lenders have different definitions for “bad credit.” Many base how credible a borrower is on your credit score alone. Others may give you the benefit of the doubt if a single event caused your credit score to drop. Someone who has really bad credit and has a credit score below the average of 640, might have a bankruptcy, and even a default on a mortgage or a car loan.
People with a low credit score who don’t have a long history of bad credit may have more options available to them with the right lender. Those with the worst credit don’t have a prayer of getting a reasonable rate. They have few options and most of them are bad ones.
Reasons People with Bad Credit Get Loans
From a distance, getting a loan that you know has high rates when you already have bad credit may not make a lot of sense. The picture may look a lot different from the inside. They could be really bad at managing money and simply need funds to help them get caught up on their debts. Or, they may not see the danger in borrowing the money for something they want to buy. Many times, it is because they don’t have the money they need for essentials like transportation, food, or electricity.
Another reason that people with bad credit want to take out loans is to work towards improving their credit score. Sometimes, the best way to accomplish this is to get a credit card that requires a deposit. You use it like a credit card and lenders make positive reports on your credit to help you rebuild your credit. You also start out with a small balance that you work to increase over time.
Getting a bad credit loan to re-build your credit doesn’t always work. If you overestimate your ability to repay, you could make your credit score even worse.
There is more than one type of lender out there. Know your options before you make your choice.
Payday Loans – These are short-term loans that are available to almost anyone who has a source of verifiable income and a bank account. The maximum amount of these loans is usually around $300 and the payment is due in two weeks. Although payday loans can help in a pinch for some cash emergencies, more often than not, they tend to trap borrowers into borrowing more money to cover the payment of the previous check.
Payday loans have extremely high interest rates and they give the lender access to your checking account. They also have a signed check for the full amount of your loan that they can submit when your payment is due. If the money isn’t in your bank account, you could end up paying even more in overdraft fees.
Taking out a payday loan online makes you even more vulnerable to scams. The lending company requires access to your bank account information and your employer. The lending company deposits the money into your bank account electronically and then collects their payments in the same way. Do you really want someone you don’t know accessing your bank account?
Car Title Loans – These loans are similar to payday loans except that they require you to use your car title as collateral. The vehicle you use must have a clear title and be worth a certain value to qualify. You can usually borrow quite a bit more with a car title loan than with a payday loan due to the value of your car. The downside is that if you can’t pay your loan, the company will keep your title and take possession of your car.
Loan Matching Service Providers – As the name implies, these companies take your application for a loan and then match you to a lender that is right for you. This approach does give you access to more bad credit lenders so that you can choose the best available terms.
On the downside, even the best rates aren’t going to be good. There is no guarantee that the company you choose is a legitimate one and that your information is safe. Also, you can expect an onslaught of phone calls and emails from the different companies associated with the service providers when the competition to get your business begins!
Some lenders make secured loans if you have something to use as collateral. This includes your home or home equity, a car, financial investments such as stocks, or your savings. Secured loans take the risk out of lending to people with bad credit because the lender already has something of value in case you default.
The obvious problem with a secured loan is that you can lose your property if you fail to pay the loan back. These are typically items with a great deal of value. Do you stand to lose more than the amount you need to borrow?
Peer-to-peer loans cut out the financial institutions and bring together people who want to make interest on their money with those who want to borrow. Peerform is a popular company for people looking for less restrictive credit standards. They probably aren’t the right choice for anyone with very bad credit. If you want a legitimate lender and your credit score is at least 600, you may qualify.
One of the drawbacks to using Peerform or any peer-to-peer lending company is that it often takes weeks to get your money. You could also have trouble qualifying and not get the loan at all. Peer-to-peer lending is not a good option if you need cash in a hurry.
Bad Credit Loans at the Pawn Shop
Pawning items is a lot like taking out a secured loan except that pawn loans don’t have the same risk to your credit rating. If you have valuable items commonly pawned at pawn shops, you can use them to borrow money. The pawn shop will give you a specified amount of time to pay off your loan. If you fail to make your payments, they may be flexible and give you an extension on your loan.
Defaulting on a pawn loan will never affect your credit. If you forfeit the item, the pawn shop takes possession and you keep the cash they loaned you. There are no loan limits other than the value of what you pawn. You can pawn one item or several to get the cash you need on the same day that you go to the pawn shop. You never have to take out a loan to pay back the loan you already have.
How to Improve Your Credit Score
There are some better ways to improve your credit score without getting a bad credit loan that you can’t pay off. Take control of your situation and start moving the numbers up by:
- Checking Your Credit Score Regularly – Credit Karma is a legitimate, free website credit tool where you can check your credit score for free. You may find out that your score isn’t as bad as you thought. Make sure you check for errors or fraudulent activity that may have lowered your score without your knowledge. You have the right to file a dispute and have errors removed.
- Pay More on Existing Accounts – If you have trouble coming up with a lot of big payments at the first of the month, start making smaller ones each week. This helps you meet your minimum payment without leaving you short on cash when everything is due at the same time. Make sure you get the total amount due paid before the due date. Timely payments will translate into a better credit score.
- Keep Balances Low – If available credit calls your name, make a strong effort to resist. If you max out your credit cards, it will have a negative impact on your credit score. It also keeps your payments from going down.
In addition to the many types of lenders, there are also different types of bad credit loans. Again, availability and convenience depend on your financial circumstances and the terms the lender offers you.
Personal loans are made by different types of financial businesses, from banks to credit unions. Personal loans made to people with bad credit often require collateral. Those that do not require collateral are more difficult to get and usually offer higher rates to borrowers with a poor credit history. You can use the money from a personal loan for anything you want.
If collateral is not an option, you may be able to get a personal loan if you have someone with a good credit rating to co-sign the loan. The obvious problem with this is that the co-signer becomes equally responsible for repayment. Be cautious about the risk of defaulting and sticking a friend or family member with your debt.
There are bad credit loans for people who want to buy a house, but the safest approach is to apply through the Federal Housing Administration for a bad credit loan. You will need a credit score of at least 580 and a down payment of 3.5% or greater. If these reduced amounts are still a challenge for you, this probably isn’t the best time to make a home purchase.
Bad credit loans to buy a car almost always include a higher interest rate, higher monthly payments, and a lot higher payoff amount on the vehicle. You might end up paying double the purchase price or more. Higher payments also make it more likely that you will have difficulty meeting your payments.
How to Spot Bad Credit Scams
It is a sad fact that at a time when you are already struggling with bad credit, lending companies and scammers look for ways to take advantage of you. If you know what to look for, you can avoid making your situation worse. Things to be wary of include:
- Asking for an application fee
- Offering a loan without checking your credit score or getting employment information
- Companies with odd sounding names
- Persistent calls and emails
- Requests for personal information
- Rushing you to borrow while you can save
The internet provides you with the information you need to find out if a company is legitimate or just trying to take advantage. Take the time to look a lender up and find out what previous borrowers have to say. If there are many complaints against the same company for bad credit loans, then run the other way.
Beware of lenders that don’t offer enough information. Look for their address and how long they have been in business. If the information isn’t there, they may be trying to fool you.
Monte De Piedad is a San Diego pawn store with a long history of providing trustworthy service to the community. Contact us to learn more about the safest and easiest way to get the money you need fast. We offer pawn loans that don’t have the risks or the high fees associated with most bad credit loans available to you today.