These days, if you find yourself with an unexpected expense you can’t cover and you happen to have less than perfect credit, there are a few ways to get money. The question is which one is the best for you? Read on to learn more about the best personal loans for people with bad credit.
Payday Loans: Personal Loans Based on Your Income
Available at local loan stores and online, these personal loans are quick, convenient and available even for people with poor or bad credit. They’re structured to be repaid on your next pay day usually within two weeks of when you get funded. The problem with payday loans happens when you can’t repay the loan in full within that first two week period. If that happens, prepare to be hit with some steep interest rates. Sometimes these rates can amount to $20-$30 per hundred borrowed every two weeks. Many people end up rolling over their payday loans 10 times before they’re finally able to repay them. This practice can mean you end up paying more in interest than the principal of the loan so be sure to examine the pros and cons of payday loans before you sign on the dotted line.
Pawn Loans: Bad Credit, No Problem
A loan from a pawn shop is secured by the valuables you pawn such as jewelry, electronics, tools, and musical instruments so whether you have good or bad credit has no effect. You bring your items to the pawn shop; they will appraise them and base your loan amount on the value of the items you’re pawning. Keep in mind, a pawn shop will not loan you the full value of your items. Pawn shop interest rates are governed by the individual states but again, they’re not cheap. The dangerous thing about pawn loans is if, for some reason, you’re unable to redeem your items or pay the interest to roll over the loan to the next month, you will lose your valuables. The upside of a personal loan from a pawn shop is besides generating almost immediate cash, once you redeem your item your obligation to the pawn shop ends.
Car Title Loans: Secured by Your Car
Similar to pawn shop loans, auto title loans are secured by your vehicle whether it’s a car, motorcycle, RV or boat. Important Note: While poor or bad credit won’t affect you here, you must own your vehicle outright and have a clear title to get one of these loans. The emergence of car title loan stores on almost every corner is due in part to the way these loans are structured. Car title loans generally give you 6 months to repay the loan with the first few payments going almost entirely to interest. In other words, they get their money first before you start paying down the principal. While you get to keep using your vehicle while you pay off the loan, if you’re unable to make the minimum payment or settle the loan within the allotted time, you may lose your car. Like pawn shop loans, auto title loan stores are not going to loan you the true value of your vehicle.
Signature Loans: A True Personal Loan for People with Bad Credit
These short-term, personal loans are unsecured and available at both local loan stores and online lenders for people with less than perfect credit or in some cases, bad credit. Short-term loans are usually scheduled to be repaid within 6 to 12 months and while the interest rates can be steep, there’s no penalty for early repayment. These loans seem to be best managed when repaid within about 5 payments. This saves the borrower a ton of interest. While loan amounts are not as high as with auto title loans, many lenders will go up to $5,000 if you qualify. For most people, that’s enough to cover any unexpected expense or emergency. Besides being unsecured and giving you payment flexibility, one of the pluses of short-term, signature loans is that they’re confidential. Only you and the lender know your business. If you go the online route, you want to look for a lender that is affiliated with the Online Lenders Alliance or OLA.
Why people take out these different personal loans varies from sudden car repairs to unexpected medical expenses to preventing multiple overdraft fees. It’s important to do your research to learn which kind of loan is best for you. In the end, you should always consider whether the loan you take out will cost more than it’s worth.