If you have less-than-perfect credit, you might think getting a loan isn’t an option for you. Personal loans for bad credit make it possible to get emergency cash when you need it. Unlike typical loans from banks or lending companies, you don’t need a good credit rating nor do you have to worry about meeting high payments each month. You also have the freedom to use the money on whatever you need.
What Is Bad Credit?
Things break, people get sick, and sometimes even repairs take a turn for the worse. Sometimes, there’s no time to wait. Even those issues that require immediate attention often require cash up front. If you have bad credit, you might feel trapped between the proverbial “rock and a hard place.”
If you have bad credit, you aren’t alone. An estimated one-third of Americans have a credit score lower than 601. But many of them don’t fully understand what their score means. FICO is the most common score rating system, which uses a range of scores from 300 to 850. While anything over 760 is considered “excellent”, scores under 620 are considered subprime. That means a huge chunk of all Americans have a bad credit score.
Credit scoring companies look at a variety of criteria to determine a credit score. Payment history, the amount the person owes, the length of the history, new credit, and the types of credit used figure into the score. One of the biggest factors that hurts your credit score is applying for credit. That’s something to keep in mind when applying for personal loans at multiple locations. Every application can take up to five points off your credit score. This reduction in credit impacts your credit score for a year.
Why Does It Matter?
If you aren’t planning on making any big purchases, you might think a bad credit score doesn’t matter. But things don’t always go according to plan! What if the transmission goes out in your car? Or the refrigerator stops cooling? If you or another family member had a dental emergency, how would you pay? These are just some of the emergencies that the average person deals with every day.
If your credit cards are maxed out and you’re already living from paycheck to paycheck, a personal loan might be the only option for you. Most lenders don’t give loans to people with poor credit. Since personal loans don’t necessarily require collateral, the lender needs to know you have the ability to repay the loan based on things like your credit score.
Some lenders do offer personal loans for bad credit, but you’ll have fewer options, all of which will come with higher interest rates. You have to pay back more than you borrow and the interest rates and fees determine the total amount.
Applying for a traditional loan isn’t fast, either. You might have to fill out a long application and wait for days to get an answer. When you need money for an emergency, you don’t have that kind of time to wait. Once you get turned down, the process starts all over again. If you are approved, you may soon realize you can’t afford to pay the loan back.
But wait; there’s more! Bad credit limits your options for getting cell phone service. It can cause you to get higher insurance rates on your car. It also increases homeowner’s insurance rates.
It takes time to build good credit. But failing to pay off one debt in a timely manner can cause your score to fall significantly in a short period of time. Medical bills and credit card debt are two of the biggest causes of poor credit today. Once your score falls, building it back up takes a lot of time and effort. If you have an emergency, you don’t have time to wait for things to get better. The last thing you want to do is get a credit card advance or borrow money from a friend or family member.
Nothing is more stressful than waiting for the next big thing to go wrong. Whether you’re superstitious or not, bad things don’t usually stop at one. The problem comes down to finding the money you need now, without making things worse.
What Is a Personal Loan?
Personal loans are usually “unsecured,” meaning they don’t require collateral. In contrast, an auto loan or mortgage is “secured.” If you fail to repay the loan, the lender takes possession of the car or house. Lenders rely on your credit score, your asset to debt ratio, and your income to determine your ability to repay a personal loan.
You can use a personal loan to pay for almost anything. It’s a convenient way to pay for a major purchase without coming up with the entire purchase price up-front. If you want to renovate your kitchen or finish your basement, you might fund the project with a personal loan.
People with good credit have more options for how they pay for all kinds of things. A personal loan might have much lower interest rates than their credit card. They end up paying less for their purchases and keep their credit cards available for other needs that come up.
Personal loans for bad credit aren’t as much of a convenience. Difficulty getting approved and high interest rates make them difficult to obtain and pay back. People who target these types of loans usually need money for more urgent reasons. They need money for necessities, not luxury items.
Places where people find traditional personal loans include banks, credit unions, and online lenders. Of these, banks are less likely to offer personal loans for bad credit. Credit unions are sometimes more relaxed in their requirements. Those with special programs for people with poor credit are more likely to offer personal loans without the very high interest rates other lenders impose.
Some lenders will offer loans to people with fair credit if they have a co-signer. The co-signer must pay the loan if the borrower can’t. This puts an unfair burden on the co-signer if they must meet the obligation of the borrower. You might be uncomfortable putting a friend or family member in the position of covering your debt.
Finding online lenders willing to make personal loans to almost anybody is easy. But beware of those advertising personal loans for bad credit borrowers. Many of them charge very high interest rates. Make sure you understand exactly how much you’ll pay, how often, and through what means. Also, check out the company with the Better Business Bureau. It’s a good way to identify predatory lenders that will only add to your financial worries.
Payday loans are another type of unsecured loan that offers same-day cash. These loans offer a number of advantages over other loans including:
- No credit check required
- No need for collateral
- Easy application process
- Receive the money on the same day you apply
- Borrow only as much as you need
Getting a payday advance is fast and easy for anyone with a source of income and a checking account. So easy, in fact, that many of them overlook the disadvantages of using them. They have several limitations, including:
- Limited amount each customer can borrow
- High interest rates of up to 400%
- Leads to a payday loan cycle and more financial problems
- Gives online lenders access to your bank account
- Must be paid back with interest in a lump sum
- Some advance businesses allow extensions on loans at a cost, leading to ongoing payments without paying off the loan
Most of us know the warnings against getting cash advances from credit cards. The terms related to payday advances are so bad, many experts recommend getting a credit card advance before considering a payday advance.
Pawn Shop Loans: The Best Kind of Personal Loans for Bad Credit
If you own anything of value, a pawn shop loan is a good solution. It’s a simple, fast way to get the money you need for emergencies. It also prevents you from paying a high price to borrow the money you need.
Pawn shops deal in high-value items like jewelry, gold, musical instruments, power tools, watches, and electronics. The amount of money they loan you depends on the value of the item you offer as collateral. Unlike personal loans for bad credit, a pawn loan doesn’t involve a credit check.
If something happens that you can’t repay your loan at the end of your term, you have two options. One is to keep the money for the loan and let the pawn shop take possession of your item. Failing to pay off your loan won’t hurt your credit, but it will forfeit your item.
The other choice is to pay the interest on the loan and extend the loan. These options help give you the peace of mind that a personal loan won’t. You never have to worry about losing your item when the next financial emergency comes up!
Every pawn shop has its own terms, some of which depend on state laws. Make sure you know the terms of your loan before you make an agreement.
Choosing What to Pawn
Most pawn shops offer pawn loans on similar items such as jewelry and gold. Some specialize in one or two types of items. For example, many pawn shops focus on buying and selling gold.
– Consider the Financial Value
If you have a selection of valuables to pawn, you may have more options to get the amount of money you need. The idea is to get as much as you need without going way over. For example, you need $500 to pay for car repairs. You have a diamond and gold necklace worth more than $1,200 and a pair of matching earrings worth more than $650.
You won’t get the full value of any item when you pawn it. But the $650 earrings might get you just enough to pay your car repair bill. Pawning the necklace will result in additional funds that you don’t need right now. Getting more from your loan than you need will result in your needing to pay back more money. The risk is only important if you don’t want to lose the item you pawn.
– Consider the Sentimental Value
Family heirlooms and other items with sentimental value usually aren’t the best choice. Worries that you might lose something important to you can interfere with the peace of mind a pawn loan usually brings. If it is your only option, it’s even more important to understand the terms of your loan.
Choosing the Pawn Shop
All pawn shops have a lot in common but they are all different in some ways. Not only do their terms differ, but so does their place in the community. An ethical pawn shop provides its residents with an important service on both sides of the transaction. It is a source of personal loans for bad credit borrowers. It also provides quality items at a cheaper price than you would pay at a retail store.
Research your local pawn shops before you go into the store. Learn the types of items they accept and the terms of their pawn loans. Also, check out their reputation in the neighborhood where they are located. If you’ve never gotten a pawn loan, you can learn a lot from others in your area who have!
More people use pawn shop services today than ever before. It’s a quick and easy way to get cash for life’s surprise emergencies. It also makes it possible for buyers to get better quality items for their work, school, or entertainment. Getting a personal loan with bad credit is often the start of other financial problems. A pawn loan takes the stress and worry out of getting the money you need and getting it paid back on-time.
When you need fast cash without the complications, we can help. Drop by or call Monte de Piedad at any of our thirteen locations throughout San Diego. We are San Diego’s #1 choice in pawn shops.