Finding a loan with bad credit can be challenging. Fortunately, there are plenty of options available for those in this situation.
One popular option is a personal loan from a bank or credit union. These loans tend to be more budget friendly than payday or pawn shop loans.
Loans from friends or family
A loan from a friend or family member can be an efficient way to get the cash you need now, but you should carefully consider if it makes financial sense for you. If so, set up a payment plan with them and ensure everything is documented in writing for maximum convenience.
When asking a friend or family member for a loan, it’s essential to get everything in writing and follow through on your promises. Doing this can prevent future misunderstandings and provide legal recourse if your friend fails to repay the loan.
Loaning money to friends or family can be an effective way to avoid high-interest payday loans or doorstep lending, which usually charge unaffordable interest rates. But be sure to select a lender offering the lowest possible interest rate and flexible repayment options; for instance, family members might be willing to let you pause payments if there’s an unforeseen health emergency or job loss.
Credit cards can be an effective way to borrow money, provided you pay off your balance each month. But before signing on the dotted line with any financial commitment, be sure to weigh all options carefully.
Secured cards are the most accessible type of credit card. These require a security deposit and typically report to all three credit bureaus, unlike unsecured cards which may or may not report to all three bureaus.
The card may provide access to a revolving line of credit, which could help build or repair your credit if used responsibly. However, be wary of high annual fees and account opening charges.
Our top pick is the Discover it Secured Card, which not only has a $0 annual fee but also provides up to 2% cash back on gas stations and restaurants each quarter. However, be sure to do your due diligence before signing up, as rewards may not be as generous as advertised.
If you need money now but your credit is poor, you may be tempted to take out a short-term loan. But these can be expensive and damage your credit if you miss payments or fail to repay them by the due date.
If this applies to you, it’s wise to shop around for the best rates and terms on short-term personal loans. Make sure you select a lender with reasonable repayment schedules so that you can pay back the loan in full at the end of its term.
Avoid payday loans and cash advances at all costs if possible. These types of loans often carry high interest rates and fees, making them extremely costly. Instead, consider getting a personal loan or Payday Alternative Loan (PAL) from your credit union; these usually don’t come with an application fee and charge half as much in interest as payday loans do.
If you need money now or to make an important purchase, subprime loans from lenders who specialize in bad credit may be available. These loans may be secured or unsecured and come with interest rates, fees and terms that vary by lender.
When looking into subprime loans, keep in mind they usually come with higher interest rates than standard loans and may be harder to qualify for, making them a riskier investment.
In addition to the higher interest rate, subprime mortgage borrowers must bear high closing costs and fees. Over time, these charges accumulate, increasing the amount of debt owed and thus the amount of principal that must be paid back.
Before applying for a subprime mortgage, consult with your lender to determine the most advantageous choice for you. A reliable mortgage broker can assist in finding the loan that meets your needs and prevent you from ending up with an unhealthy subprime loan that will negatively affect your credit.