In a perfect world, we’d never spend more than we have in our bank accounts at any given time.
Of course, the world we live in is far from perfect, and sometimes you need money you just don’t have quite yet in order to make ends meet.
When faced with this common conundrum, many consumers make the mistake of turning to their credit cards to bridge the gap and get the money they need in the interim. However, they come with sky-high interest rates and the low minimum payments. They may seem appealing on the surface, but can quickly put you into a debt spiral. Using credit cards in a financial emergency is just about the worst thing you can do.
This sticky scenario is only complicated if you already have a less-than-perfect credit history, which can lead to even higher interest rates or out-and-out disapproval when you submit an application. If you do get approved for a high-interest line of credit, it can be even more difficult to keep up with those payments, only causing your credit score to deteriorate even further.
Of course, that doesn’t mean you’re never going to face an emergency or need a last-minute cash injection to get out of a pinch. Fortunately, there’s a better answer than consumer credit cards or payday loans and it’s accessible even to those who don’t have a spotless credit history.
Top 4 Bad Credit Loans
Ready to find the personal loan that can help get you back on solid financial footing, regardless of what your credit history looks like? Here are our top picks for bad credit loans with monthly payments.
Loan AmountUp to $5,000
Features & Benefits
- Application takes less than 5 minutes
- Get a decision on your loan within minutes
- Funds are available within 24 hours
- Trusted by more than 2,000,000 borrowers
MoneyMutual is an online marketplace of lenders. They make it quick and easy to find a short term cash advance loan in as little as 24 hours.
One application can potentially get you multiple loan offers. MoneyMutual has been trusted by more than two million customers. They serve borrowers with bad credit from all 50 states except New York and Connecticut.
Features & Benefits
- Flexible borrower requirements
- Loan request can be approved within minutes
- Money deposited as early as 1 business day
- All credit types accepted
CashUSA connects borrowers with lenders. Each application is sent to the lender most likely to lend to the borrower. Because it works with a variety of credit profiles, it is not only a poor credit loan broker.
Interest rates vary depending on the lender, so make sure you read through the terms for each emergency loan before you choose. Applying online only takes a few minutes, and funds are often available the next day.
Loan Amount$500 – $10,000
Loan Term3 – 60 months
APR5.99% – 35.99%
Features & Benefits
- No cost to check loan approval
- High approval rate despite credit history
- Funds available as soon as next business day
- Assisting people with bad credit since 1998
Bad Credit Loans is an online lender marketplace that allows you to connect with multiple lenders by filling out a single application. The service is 100% free.
Once you’re approved, your lender will provide you with the APR, loan fees, and other terms.
Read through the terms, compare all the offers you’ve received, and only accept the loan you’re most comfortable with. You are not obligated to accept the personal loan from any lenders that you are matched with.
Loan Amount$1,000 – $35,000
Loan Term3 to 72 months
Features & Benefits
- Multiple loan types available
- Fast loan decision
- Funds deposited as soon as you accept an offer
- Nationwide availability
You can get a loan through PersonalLoans.com with credit scores as low as 600. Each lender in their network offers its own unique interest rates.
The quick and easy online application only takes minutes. You’ll have a decision within a business day of submission.
Why is an installment loan better than a credit card?
Rather than putting your unforeseen expenses onto a credit card, where you may face an interest rate of 17% or even more, it might be a better idea to look into taking out a personal loan, sometimes also known as an unsecured or installment loan.
They’re called “unsecured” because they don’t carry any collateral, like a mortgage or a car payment, and they’re paid off over the course of time in regular monthly “installments.”
When you take out an installment loan, the lender gives you a lump sum up front, usually at a fixed rate. It comes with an agreement that you’ll repay the principal and interest over a set period of time, usually between three months and five years. For those looking to fund an unexpected expense or financial emergency, this approach is better than using credit cards for two major reasons.
- Installment loans tend to have lower interest rates than credit cards, although your individual loan terms will vary and may be impacted by your creditworthiness. For context, though, unsecured personal loans tend to start around 5% APR, whereas credit card companies charge 17% on average.
- Installment loans are for one lump sum, rather than allowing you the capacity for open-ended spending. With credit cards, even if you just intend to use it for your financial emergency, it’s all too easy to turn back to it again and again for future expenses. This is exactly how people rack up huge amounts of revolving debt. With personal loans, you’ll know exactly how much you owe ahead of time, which means you’ll only ever be responsible for that much during repayment!
Using Personal Loans to Consolidate Debt
Many people take out loans to cover a discrete expense, such as long-needed home repairs or a hefty hospital bill. But if you’re already drowning in consumer debt, you can also use a loan to take a tactic known as debt consolidation, which can help save you lots of money in interest in the long run.
Here’s how it works. Say you have $10,000 remaining in student loans (5% APR), as well as two maxed-out credit cards. Credit card A has a balance of $3,000 and an APR of 22%, and credit card B’s balance of $7,000 is charged at an APR of 17%.
If you chipped away at all your debts paying only the monthly minimum, you’d end up spending thousands of dollars in interest. Not to mention having to keep track of three separate accounts, which all need to be paid to separate companies and may also have three disparate due dates.
If you take out an installment loan for $20,000 instead and pay off all three accounts at once, you’ll only have one account to worry about. Plus, you’ll know exactly how much you’ll be paying in interest ahead of time. (And given that installment loans carry lower interest rates than credit cards on average, you stand to save a significant chunk of change while you’re at it.)
How does an online installment loan work?
Applying for, receiving, and repaying personal loans is easy. All you need to do is submit your personal information, and the financial institution will let you know what level of funding is available to you. Depending on the lender, the application may or may not impact your credit score, and your credit history will usually play a factor in the terms and conditions of your agreement. (But don’t worry, that doesn’t mean you won’t be able to find a loan if you have imperfect credit!)
Once the bank has the information it needs to render a decision and you’ve agreed to the proposed terms, you’ll receive the funds, usually either by check or electronic transfer. You can then use them to pay off your bills, consolidate your debts, or for whatever your original purpose was. Then, you’ll begin repaying them on a monthly basis shortly thereafter.
When agreeing to the terms of the loan, however, it’s important to think critically about what kind of loan will work best in your situation. How your loan agreement is set up has a huge bearing on how much interest you’ll pay overall, even if your lender offers a seemingly-low interest rate.
Installment loans must typically be repaid in full within between three and five years after the funds are borrowed, though specifics vary. It can be tempting to agree to short-term loans, which dangle the promise of being debt-free in no time. However, the shorter the term, the higher the necessary monthly payment tends to be.
That said, longer-term loans can also be expensive in their own right since you’ll be paying the interest for a longer time period. When the APR is fixed, spending more years repaying the loan means putting more money into the bank’s pockets. So, it’s important to find the balance between affordable monthly payments and the shortest term that’ll work in your scenario.
Also, keep in mind that even at a significantly lower interest rate, it’s possible to take out high-total personal loans in the ballpark of $35,000. This can be a godsend if you have unexpected medical bills to cover, but can also be painstaking and expensive to repay.
As with all lines of credit, a failure to pay on time can lead to negative reports to the credit bureaus. So, make sure you can afford your loan before you sign the paperwork. (On the flip side, positive activity associated with your new loan can stand to boost your score, so take it as an opportunity to brush up your credit report for next time!)
Although a debt-free lifestyle is an ideal we all aim for, sometimes, taking out a little debt is the key to creating a sounder financial future. This is true, especially if your options are between a bad credit personal loan or a high-interest credit card.
Using these financial products responsibly can help you get out from under a bad situation while also creating positive activity on your credit report, which can mean smoother sailing further on down the line.