Bad Credit Borrowing Alternatives
Having bad credit does not necessarily mean that you cannot borrow money. However, very high interest isn’t a given. You can say no and shop around. There are plenty of other solutions to cover your cash issues without resorting to the harsh terms offered by loans. We have prepared this guide for you to compare simple options and choose the one that best suits your life.
Need to compare current offers? See our Bad Credit Loans page for today's options and simple steps.
The impact of low credit and the significance
With a score of 580 or below, lenders will either reject your application or give you a higher cost. That affects the budget. It also causes delays in the schedule. So, you need to borrow money from safer options that are less expensive over time.
Low score or bad credit should not close the door for you. It may just be the chance for you to seek a different route and work on your credit.
Credit card instead
Bad credit is not always the reason behind not having a credit card. There are starter and subprime cards out there for this reason. The limits will probably be small, and the fees may be applied, but these can be the way to getting good credit habits.
Purchase small items, avoid high balances, and pay debts on time. Such a regular way of doing things will not only help you get a higher score but will also boost your self-confidence.
Secured credit cards
A secured credit card is one that requires a cash deposit. It means that your deposit becomes your credit limit. Thanks to this safety net, many people are able to get approved with the bank. Make payments on time and try to keep the usage below 30 percent of the credit limit. Some people prefer aiming for an even lower limit.
Common deposits start from $200 to $500, and you could add more if the bank agrees. If you use the card correctly, you may get the opportunity to get an unsecured card in the future.
Unsecured credit cards for those with poor credit
There are some types of cards that don't require a deposit, even if you have poor credit. The ones with no cash requirements tend to have smaller limits and interest rates, and they are generally more expensive. Whatever card you choose, make sure it is the one that reports to all three credit bureaus.
Do not go for the cards with a big one-time setup fee or the ones that carry ambiguous terms. Keep your balance below 30 percent of your credit limit and always repay in full within the agreed time if possible.
Beware of cash advances. Interest begins to be charged right away, and the cost piles up very fast. If you have to take one, be quick in paying it back.
Peer-to-Peer (P2P) lending options
P2P lending is the borrowing process that uses digital platforms to link borrowers with investors. The websites such as LendingClub and Prosper allow you to share information about obtaining a loan, and the reason for taking it. From there, investors decide what loans they will fund.
For many, having limited credit histories is like getting a fresh voice, and for others, the chance to be heard.
How it works
You will need to register on the platform and provide your details, as well as your purpose and income. Once approved, you will receive your loan, which will be ready in a few days. Often, loans have a term of several months to several years. Rates and terms vary depending on your profile and site policies.
Why this benefits those with bad credit
P2P lenders tend to study more than just the score. They may check on your income, employment status, and your bill payment history. Weighing these factors more in favor of high-flying employees with some hiccups in the past gives a fairer assessment.
Home equity options
If you own a home, you may borrow against your equity. The property you're using is the collateral, and so you should only borrow what you are able to pay back. This can come in handy for large expenses like remodeling, medical bills, or credit card debt. Be sure to read and understand the clauses in the contract before you proceed with the loan. Your house is in jeopardy.
Home equity loans
This product is usually a predetermined lump sum with a fixed rate. You know what you will be paying each month from the very start, which makes your budgeting more manageable. Some costs incurred while repairing the house could qualify for tax benefits. It is advisable to discuss your specific case with a tax specialist. The main focus is to borrow sensibly and guarantee punctual payments.
HELOCs
A HELOC or Home Equity Line of Credit is basically a reusable credit line. You withdraw what you need, and you pay interest on the amount you use. After you repay it, you can withdraw it again, but within limits. Rates are generally variable. Beware of the unexpected fees per year or draw rules. Prepare for rate changes so that you do not get pressured in your budget.
Payment plans and speaking to debt collectors
Before you apply for the new loan, you can check with the company you owe money to about the possibility of a payment plan. If you contact them as soon as possible, the majority of them will be happy to assist. A plan could help you to avoid late payments and relieve some burden while you get back on track.
Utility bills
The electricity, gas, water, and internet providers have various hardship programs. Some of them could set your balance over several months. It is always advisable to ask for help before you find yourself unable to make a payment. It is better to keep the lights on than to take a new loan.
Medical bills
Various hospitals and clinics give additional discounts or choose to make interest-free plans in case of problems. For a better view of your expenses, ask for a detailed bill. Verify it for errors. Most offices will build the plan around your income if you provide an explanation of your financial situation.
IRS tax plans
If you have pending taxes, the IRS can arrange for a repayment plan online that is usually cheaper than high-interest loans. Therefore, keeping your payments on time and also on your future tax obligations helps you to avoid penalties.
Choose only what fits you best
Your bad credit does not limit you. You have so many options to sort your cash needs without risking your finances. Think of what you earn, your expenses, and your time frame. Avoid tentative offers. Choose the option that optimally fits your cash flow for today, and at the same time, helps you with your credit. With consistent payments and simple habits, your score may improve.