If you have bad credit, you may think your options are limited when it comes to personal loans. This holds true especially if you have been denied before.
While there is some truth to this idea, it doesn’t mean you have no options at all. More importantly, it doesn’t mean you must turn to payday loans or other predatory loans.
The problem with payday loans is they provide quick access to cash while approving almost anyone. However, if you aren’t able to repay them, you could find yourself in a vicious, inescapable cycle.
Luckily, there’s a better way. Here are some of the best personal loans you should consider if you have bad credit.
Best Loans for Bad Credit
There are many loan providers out there and it can be overwhelming to try to sift through them all. The good news is that there are also sites out there that will help connect you with the right lender.
Also known as lending networks, these sites only require you to fill out a simple form to determine your eligibility. As long as you meet the basic requirements, you’ll be shown a list of a slew of different lenders. These requirements will be similar, but loan amounts can vary greatly.
Let’s take a look at some of the different lending networks.
MoneyMutual’s network of lenders can offer you a personal loan up to $2,500. Once you fill out the eligibility form, you could gain access to funds as soon as the next business day.
MoneyMutual does not provide eligibility requirements but simply says that lenders will review your information. Because basic eligibility requirements are typically similar, you should try to meet those in line with other lending networks.
$500 - $10,000
3 to 72 months
As low as 5.99%
CashUSA offers personal loans from $500 to $10,000. Their site actually shows a range of $500 to $10,000+, suggesting larger loans may be available in some cases.
You must be at least 18 years of age, be a US citizen, and have a monthly income of $1,000 or more. You are also required to have a bank account as well as being able to provide proof of employment. They do not specify a minimum credit score.
Just fill out the form, connect with a potential lender, and receive funds as soon as the next business day.
$500 - $5,000
3 to 60 months
Bad Credit Loans can set you up with a personal loan from $500 to $5,000.
All of the standard eligibility requirements apply – you must be 18 years of age and a US citizen. You are also required to have a checking account and proof of employment.
Bad Credit Loans does not provide information about interest rates; those are set by the lender. However, repayment terms are listed as 3 to 36 months.
$500 - $35,000
3 to 72 months
PersonalLoans.com offers a wide variety of loans, ranging from $500 to $35,000. To qualify, you must be 18 years or older. You must also have a bank account and have a regular income.
PersonalLoans.com does not have a minimum credit score requirement, but they recommend a credit score of 600. While good credit is not necessarily required, you should not have any accounts more than 60 days late or any recent bankruptcies.
Why An Installment Loan Makes Sense
As we mentioned in the intro, you may be quick to turn to payday loans if you have bad credit. But failing to repay these loans in time can trap you in a never-ending debt spiral. The extremely high-interest rates of these loans can add up so quickly that they become nearly impossible to pay off.
With a payday loan, all of the money you borrow is do on (or before) your next paycheck. And if you can’t pay, the repercussions could be steep. The CFPB says the following about failing to pay:
Some payday lenders give borrowers the option to renew or rollover their loans if they cannot afford to pay off the loan when it’s due. However, many states limit or ban these renewals or rollovers.
If your loan is renewed or rolled over instead of being repaid in full on its due date, you are paying a fee to extend the loan due date. Renewing by paying just the fees does not reduce the principal amount you owe.
Note that some states don’t allow rollovers. But creditors may take other actions, such as bringing you to court. For these reasons and more, installment loans are a much better option.
Some states also ban payday loans entirely, so keep that in mind. In these cases, even creditors offering loans online are usually prohibited from lending to residents in these states.
Comparing Payday Loans and Installment Loans
The biggest difference between the two is when you pay. As mentioned, with payday loans, you typically must pay the entirety of the loan on or before your next paycheck. With installment loans, the term will be at least a few months up to a few years.
Also, the average APR for payday loans is 400%. The reason lenders are able to charge this much is because they’re dealing with small amounts of money over a short period of time.
For example, they might lend you $200 and charge you $30 in interest to be paid back two weeks later. That doesn’t sound like much, but that works out to $780 of interest annually, or 390% interest.
With payday loans, creditors can charge as much as they want. But with installment loans, there are laws that cap interest rates. Typically this is up to 36%, though in some cases it can be higher.
How to Secure a Better Loan
One thing that draws people to payday loans is the prospect of having cash in hand almost immediately. Unsurprisingly, though, another factor is credit ratings. People with bad credit may have trouble getting approval for anything other than a payday loan.
Even though many of the sites above don’t have explicit requirements in terms of credit score, improving your credit can only improve your approval odds.
If you currently have other forms of credit, try to be sure those are in good standing before applying for a personal loan. Remember that borrowing money in any form is considered credit.
In other words, if you have a mortgage, auto loan, student loans, or even credit cards, be sure you are at least making the minimum payments if possible.
Use Payday Loans Only as a Last Resort
You may find yourself in a situation where you have exhausted all installment loan options. If no one will approve you but you need to keep the lights on, a payday loan might be your only option.
But the point here is to be sure you’ve looked everywhere else first. Each of the above options will put you in contact with a large number of lenders. As such, you should have plenty of options before a payday loan becomes necessary.
Only after you have explored every alternative should you consider a payday loan. And, even then, you will want to proceed with caution.