5 Loan Options If You Have Bad Credit (with Pros & Cons)
If you used your credit card to the point that you can’t afford to burn the credit, chances are you have a low credit score.
17:41 14 November 2022
If you have missed a few loan payments or used your credit card to the point that you can’t afford to burn the credit, chances are you have a low credit score. Taking out another loan is likely to be a challenge as lenders would see you as untrustworthy or risky.
So, what happens if you need to pay for an unexpected expense like a medical bill or a new vehicle? You take a loan, obviously. Although a bank loan may look like the only way out to help you financially, there are other alternatives for those with low credit scores.
Here we will discuss what they are, along with the pros and cons to help you choose the most suitable.
5 Types of Loans for People with Poor or No Credit History
Although borrowers with poor credit scores may find fewer loan options, their situation is not hopeless as many would think. There are many lenders out there willing to help out borrowers get quick cash in exchange for higher interest rates and some security.
Getting a loan with low or no credit history is a mission possible; here are some bank loan alternatives you can turn to.
A payday loan is one of those that has criteria that exclude your credit score. It’s called a payday loan for a reason. You borrow a small amount- usually between $500 and $1,500 - and pay it back on your next payday.
Getting a payday loan is extremely easy. You can do it in a matter of minutes online. All you need is an active bank account, proof of income, and ID. Payday lenders do not run background checks nor question your reasons for taking out a loan.
So far, the most significant advantage of payday loans is there is no collateral. This means you don’t risk losing your property or vehicle.
Pros & Cons
Car Title Loans
Another quick and accessible loan to get is a car title loan. Like a payday loan, this one is also a short-term loan with high fees. In case of emergency and need urgent cash, you can provide your vehicle as collateral. Other requirements include being 18+ years of age, proof of vehicle ownership, and insurance. Lenders may have different requirements.
The amount you can borrow will be determined upon vehicle investigation; it is usually 25%-50% of your car’s value. You will have to pay the loan back at the end of the 30-day term. Be wary that your inability to pay back will result in your car being repossessed by a lender.
Pros & Cons
Next on our list is a personal loan. You can benefit from this type to finance your wedding, utility bills, new car, holiday package, and anything else. You can qualify to borrow anything between $1,000 - $ 50,000 in one lump sum.
Personal loans are usually unsecured, but it is easier to meet the requirements of a secured personal loan. The latter requires you to provide collateral (e.g., property, vehicle, etc.). There is also more time given to repay the loan; it can range from one to ten years.
Pros & Cons
P2P lending is a nice alternative to traditional bank loans. The process is as easy as applying for any loan mentioned above. You would register and fill out a form on an online platform that later processes your account. Next, you are given an interest rate based on your credit rating and proposals from potential lenders.
Peer-to-peer lending is quite versatile and flexible since you choose who to borrow from and decide which proposal suits your preferences best. The repayment term also varies. You can expect to pay back the borrowed amount monthly, together with the interest rate.
Pros & Cons
The last alternative to bank loans is a guarantor loan. You ask your family member or somebody close to you to become a guarantor. It means if you are unable to repay the loan, the guarantor will have to do it instead. The better the credit score your guarantor has, the lower interest you will obtain.
Anyone can be your guarantor, but because the person risks paying for you if you default, the only ones agreeing to this term would be parents or close friends. Other than that, there are other requirements to become a guarantor:
- Have a stable income
- Have a good credit history
- To be above 21 years of age
- Have equity in their property
Guarantor loans are beneficial for people with low or no credit score looking for additional financial support to pay for buying a vehicle or property, home renovations, or medical bills.
The downside for the guarantor is that the person may lose assets in case of inability to keep up with the payments. Before obtaining the loan, make sure to check whether you will be able to afford the monthly payments without involving your guarantor in the process.
Pros & Cons
Whether or not your credit score is flawless or not, everyone turns to a lender to borrow money. The lender later decides whether your case is risky based on the credit history. If it is indeed poor and you’ve suffered some ups and downs, you can always borrow from other lenders that offer car title, personal, or payday and other loans.
Each loan type comes with its benefits and drawbacks. Make sure you choose carefully the one that you can pay back on time without losing your assets. To find out about your lending options, simple search for ‘title loans near me’ and you will find an array of providers.