Alternatives to bad credit loans

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When you’re in dire need of cash, you might consider bad credit loans—personal loans made to people with poor or very little credit history. These loans are convenient because most people can use them without a credit check. However, these loans come with a trade-off: high interest rates can cause your spending to increase in the long run.

Before exposing yourself to the risk of bad credit loans, it’s worth exploring your alternatives. If possible, it’s best to exhaust these options before seeking out a high-interest loan. Alternatives offer better options—lower interest rates, less stringent repayment schedules, and less risk of long-term financial challenges.

One of the ways you can get better loan terms is to improve your credit score. Doing so ensures a personal loan with a lower APR and a longer repayment period, as well as a personal loan with more flexibility in terms of monthly payment dates and more.

This option is easier said than done, and it does take some time for your actions to reflect in your credit score. However, if you have the time and ability, these are the best ways to improve your credit score quickly:

  • Get a secured credit card: If you have some cash available, consider using it to get a secured credit card. Your own money backs the secured card, so if you don’t pay, you don’t owe interest — you pay it off with your initial deposit. When you pay on time, they are reported to the credit bureaus and improve your credit score.
  • Pay the credit balance: It may seem counterintuitive to someone who needs immediate cash, but paying off your balance to lower your debt utilization has a big impact on your credit score. Pay off your balance strategically by keeping your debt utilization below 30%.
  • Request a higher credit limit: Another way to improve debt utilization is to increase the available limit. Contact your credit card issuer and ask if they will increase your credit limit – but make sure you ask them if you need to do a hard challenge, as this can temporarily lower your score.
  • Disputed credit history error: It’s common for credit reports to contain incorrect information that can hurt your score. Request a free credit report, find any mistakes, and ask the credit bureau to correct them.
  • Get credit for monthly expenses: Some services, like Experian Boost, take your monthly payment into account when calculating your credit score. This includes rent, utilities and cable TV. Consistent payments on time can help you improve your score with these services.

The best way to avoid relying on bad credit loans, if possible, is to generate additional income. In most cases, this takes time and effort. However, there are opportunities available through the gig economy that allow you to generate additional income.

If you have a car, consider driving for a company like Uber or Lyft. If you’re crafty, consider opening an Etsy store. If you have property, you can try renting it out to convert it into extra income. Consider donating blood or plasma. Try selling products, furniture, appliances or clothing that you no longer need.

All of these solutions take time to start paying off, so be aware that you may have to wait to see results.

The prospect of asking a loved one for money can be scary, but it can also be your financial best option. There is pressure to repay the loan on top of maintaining the relationship with the person who lent you to it, but the terms may be friendlier than a bad credit loan.

Know that you’re not alone — more than 10 percent of American adults borrow money from loved ones. Financial distress affects many people, and your friends and family may know your challenges best. Even if they can’t help directly, once they understand your struggles, they may be able to support you in another way.

Some financial institutions are willing to look at past credit scores and consider factors other than credit history when deciding who to borrow money from. Online lenders often look at your bank statements and payslips to confirm that you have available income and are able to repay the loan, even if your credit score isn’t perfect.

Be sure to check the terms of these loans as they may still have high interest rates or restrictions. But these loans are often much better than traditional bad credit loan options.

Credit unions may offer friendlier terms than traditional lenders, sometimes taking factors beyond credit score and history into account when considering borrowers. Credit union loans are usually smaller amounts, but it’s worth considering paying some of your costs.

While this isn’t an ideal solution, you might be able to pay some upcoming bills by securing your credit card. Interest rates on credit cards will be higher than most personal loans. However, these rates are still much better than those offered by lenders that offer bad credit loan options.

If you have a paid home or property, you can apply for a loan or line of credit to convert your assets into cash. In the case of a home equity loan and a home equity line of credit (HELOC), you must refinance your mortgage, but this will allow you to get cash.

A home equity loan will be paid in one lump sum, while a HELOC is more like a credit card that funds you as needed. You’ll have to pay a settlement fee for refinancing, but it’s an option to get your money faster.

bottom line

Bad credit loans can provide short-term financial support, but are one of the easiest ways to get stuck in an increasingly difficult cycle of debt. If you can avoid this option, you should.

There are ways to ensure funds are not tied to your credit score and may not come with onerous terms like a typical bad credit loan. Make sure to explore your options before pursuing a bad credit loan.

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