Payday Loans for Bad Credit: Knowing Your Options
If you’re one of the 43.4 million Americans with bad credit, you might be wondering where you can turn for financing. Payday loans for bad credit are one of the suggestions you might hear about.
Payday loans are popular because of their convenience. They come in a few different forms, though, so it’s a good idea to be familiar with your options.
Payday loans are also just one of several choices you might have. Even if you have bad credit, you have more financing options than you think. Take a look at our guide for a review before you sign on the dotted line.
Payday Loans Provide Quick Solutions
Most people with bad credit turn to payday loans because they’re quick and easy to secure. Most payday lenders are willing to work with people who have poor or bad credit scores.
Keep in mind that what counts as a “bad” or “poor” score depends on the lender. Some lenders won’t work with anyone who has a score under 640. Others don’t consider this bad credit.
If your score is under 600, you’ll likely have trouble with most conventional lenders. Payday lenders may offer several different types of loans. One of these might fit your needs.
An example would be a secured versus an unsecured loan. With a secured loan, the lender will ask you to put up collateral, which they can then take if you default on the loan. If you don’t have any property like a car or a house, though, you may not be able to offer collateral.
An unsecured option could open doors in this situation. Although they often come with higher interest rates, unsecured loans don’t require collateral.
Some payday lenders will also offer loans that are based on your income, not your credit history. The experts at Bonsai Finance have put together a list of criteria for this kind of loan. You can use it to check if you’ll qualify.
Drawbacks of Payday Loans for Bad Credit
Like everything in life, payday loans have their pros and cons. If you have bad credit but need emergency funding, they can be a lifesaver.
Many of them are short-term loans, which means you need to pay them back quickly. The interest rates can also be higher than a conventional loan. This is especially true if you take an unsecured option.
You might also want to ask, “How do payday loans affect credit?”
For those of you asking, do payday loans go on your credit score, the answer is no. Most payday lenders don’t report these loans to the credit bureaus. If you miss a payment or default, it’s not going to make your credit score any worse.
Of course, that also means it’s not going to make it any better either. A common question for people to ask is, “Do payday loans help your credit?”
Since the lenders don’t report payday loans, they can’t help your credit score. Even if you make all your payments on time, your credit score won’t improve.
If you want to build your credit, there are other options.
Alternatives to Payday Loans
Payday loans aren’t the only option for people with bad credit. There’s a wide variety of financing solutions out there. You’re probably eligible for more of them than you think.
If you have a credit card, you can opt for a cash advance. This is like a payday loan since it uses funds you already have. It’s a great way to access cash in a pinch.
If you don’t have a credit card or it’s maxed out, taking a cash advance isn’t an option. Cash advances also come with high-interest rates, and there’s no grace period. That means interest starts adding up right away.
You might also want to consider installment loans for bad credit. You might have been discouraged about your chances of getting a loan. There are lenders who will set one up for people with bad credit.
Installment loans are great if you have some time to wait for the approval. They usually have lower interest rates. As an added bonus, they can help you build credit since they’ll be reported to a credit bureau.
Installment loans may be risky if you’re not sure you’ll be able to pay the loan back or make payments on time. If you need your funds right now, the long approval process makes them a poor choice.
Social Solutions for Bad Credit
Technology has also given rise to some more innovative solutions. If you have bad credit, you might want to check out peer-to-peer lending networks.
These are like crowdfunding sites, except you’ll only have one “donor” and you’ll need to pay the funds back. It’s a more informal solution for finding the funding you need.
In some cases, you may be able to ask your employer for a paycheck advance. Not every company will allow for this, so ask about the business’s HR policy.
If you’re hoping to use your payday loan to settle other debts, you can talk to other lenders about debt settlement. Check the terms of your loan or credit card to see what negotiation process is open to you.
Finally, don’t be afraid to ask friends and family. If you’re truly stuck, someone may be able to help you by providing even part of the funds you need. This solution won’t help you build credit, but it can help you get through a rough patch.
Looking Long Term
Credit counseling may also be an option you want to explore. While it may not get you the funds you need, it can help you manage your finances and debts. You can then avoid being caught in an emergency.
Other long-term solutions include debt consolidation to make managing your finances easier.
Find the Funds You Need
Between payday loans for bad credit and the other alternatives explored here, you have no shortage of options.
Are you looking for more advice on managing your finances? Check out our blog for the latest tips.