Alternatives to Bad Loans

ArtistGNDphotography/Getty Images

When you need cash fast, it can be tempting to consider bad credit loans – personal loans available to people with weak or weak credit histories. These loans are convenient because they are available to most people without requiring a credit check. However, there is a trade-off to these loans: high interest rates that will likely result in more expense for you in the long run.

Before exposing yourself to the risks of bad credit loans, it’s worth exploring your alternatives. If possible, it’s best to exhaust these options before applying for a high-interest loan. The alternatives present better options – lower interest rates, less stringent repayment plans, and less risk of long-term financial hardship.

Boost your credit score before applying

One of the ways to get better loan terms is to improve your credit score. This opens up the possibility of getting a personal loan with a lower APR and longer repayment period, as well as greater flexibility when it comes to things like your monthly payment date.

This option may be easier said than done, and it takes some time for your actions to reflect in your credit score. But if you have the time and the ability, here are the best ways to boost your credit score fast:

• Get a secure credit card: If you have cash, consider using it to get a secured credit card. Your own money protects the secured cards, so if you don’t make a payment, you don’t owe interest – you pay it back with your initial deposit. When you make payments on time, they are reported to the credit bureaus and improve your credit score.
• Pay credit balances: It may seem counter-intuitive to someone who needs money immediately, but paying down your balances to reduce your debt usage has a big impact on your credit score. Pay down your balances strategically by bringing your debt utilization below 30%.
• Apply for higher credit limits: Another way to improve your debt utilization is to increase your available limit. Contact your credit card issuer and ask if they will increase your credit limit, but be sure to ask if they will need further investigation as this will temporarily lower your score.
• Dispute credit history errors: It is quite common for a credit report to contain incorrect information that hurts your score. Request a free credit report, check for any errors, and ask the credit bureau to correct the error.
• Get a credit for your monthly expenses: Some services like Experian Boost will take your monthly payments into account when calculating your credit score. This includes rent, utilities, and cable bills. Making regular payments on time can help boost your score with these services.

Make extra income

The best way to avoid dependence on bad loans is to generate additional income, if possible. In most cases, this takes both time and effort. However, there are opportunities through the gig economy that could 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 starting an Etsy shop. If you have real estate, you can try renting it out to turn it into additional income. Consider donating blood or plasma. Try selling products, furniture, appliances, or clothes that you no longer need.

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

Borrow from friends or family

The prospect of asking loved ones for money can be scary, but it can also be the best option for you financially. There is pressure to repay the loan depending on whether you maintain your relationship with the person or people lending to you, but the terms are likely to be much friendlier than a loan for bad credit.

Know that you’re not alone in this, too – more than 10% of American adults borrow from loved ones. Financial difficulties affect many people, and your friends and family will probably understand your challenges best. Even if they can’t help you directly, they may be able to support you in other ways once they understand your struggle.

Find a lender that doesn’t view credit as the primary factor

Some financial institutions are willing to look beyond credit score and consider other factors beyond credit history when deciding who to lend money to. Online lenders will often review your bank statements and pay stubs to confirm that you have disposable income and will be able to repay the loan, even if your credit score isn’t perfect.

Be sure to look at 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 can offer more favorable terms than a traditional lender and sometimes consider factors other than credit score and history when considering a borrower. Loans from credit unions are usually small amounts, but worth considering to cover some of your expenses.

Get a credit card

Although not an ideal solution, you may be able to pay off some of your impending bills by getting a credit card. A credit card will carry a higher interest rate than most personal loans. However, the rates can still be significantly better than those offered by lenders who offer bad credit loan options.

Use a home equity loan or HELOC

If you have a home or property that you’ve made payments on, you can take out a loan or line of credit that lets you turn your equity into cash. With a home equity loan and a home equity line of credit (HELOC), you will need to refinance your mortgage, but this will allow you to access cash.

A home equity loan will be paid in a lump sum, while HELOC works more like a credit card, giving you cash as needed. You will have to pay the closing costs of the refinance, but it is an option to access the money faster.

At the end of the line

Bad credit loans can offer short-term financial support, but are one of the easiest ways to get trapped in a cycle of debt that can become increasingly difficult to break. If you can avoid this option, you should.

There are ways to get cash that aren’t dependent on your credit score and probably won’t come with the same onerous terms as an average bad credit loan. Be sure to explore your options before applying for a bad credit loan.