3 Best Ways to Borrow Money With Bad Credit
Credit is one of the most important financial concepts of the current day. Imagine if you couldn’t have credit – buying a house or car would be nearly impossible for most. Buying any large items would be significantly less common, and what would you ever do if you were just a couple bucks short when bills came out? That said, credit is also a complex system, and if you’ve had a tough go of things in the past, it can be hard to get back on track.
Getting back on your feet once your credit score has tanked can be a herculean feat. Solutions are available, even if they are not ideal, and each one comes with its own benefits and drawbacks:
- Be sure to analyze your options before making a final decision.
- Consider speaking with a financial advisor or a debt consultant in order to make the most beneficial decision for your situation.
- Research your options, then take action.
Your credit rating will go down if you have a lot of credit that is maxed out, if you have a lot of credit and only make minimum payments on it all, if you miss payments for recurring bills or on debt repayments, or if you default on payments – meaning when a payment is pulled from your account, the money isn’t available and the payment is rejected as insufficient funds.
Below are the three best ways on how to borrow money with bad credit:
1. Payday lenders
Payday lenders is one of the best ways to borrow money with bad credit. Payday loans allow you to borrow small amounts of money for short periods of time, usually without a credit check. They do typically have higher interest rates than other types of loans, which is the trade off for their ability to offer what is considered “high-risk lending”. Defaulting on these loans costs an exorbitant amount of money.
Opt for a payday lender when:
- Your payday is offset with your bill payments, and you need cash a couple days or weeks before you get paid
- You need money very quickly, and can’t spend time waiting for bank approvals
- You know you will be able to pay off the loan
- You have no other choice
Do not use payday lenders when:
- You don’t think you’ll be able to pay back the loan in full on time
- You have lower interest options
- Your loan needs are not urgent or mandatory
2. Bad credit loan
Bad credit loans can be taken out from a bank or credit union, and can help significantly when you’re in dire straits. These loans work just like a regular consumer loan and can be used for any kind of spending. The interest rates will likely be higher than if your credit were good.
Just like with payday lenders, interest is higher because banks need to make sure they are protected, as your situation would be considered high-risk. In addition, the loan terms for bad credit loans are typically short, with most loans lasting five years or less.
Opt for a bad credit loan when:
- Your credit is not in good shape
- You need some credit to help you manage things while you get back on your feet
- You cannot get a regular loan
Do not get a bad credit loan when:
- You want money for incidentals
- You have better options
- You are at your maximum capacity for debt AND you are not planning on using the loan to assist in debt repayment
3. Friends and family loans
The Beatles said, “I get by with a little help from my friends.” It’s not always possible, but if you do have a good relationship with a friend or family member who has the means to assist you, it could be worth asking. They may charge you little to no interest on the loan, and they may not require payments as consistently as an institution will.
That said, defaulting on a loan with a family member or friend can be catastrophic to your relationship with them and other members of your friend group or family. It can be more stressful to borrow from a friend or family member, because there is a personal element involved.
Opt to borrow from a friend or family member when:
- The option is available for you
- You are confident you will be able to pay back the loan as discussed in advance
- You are confident there will not be guilting, emotional abuse, or other negative repercussions as a result of the loan
Do not borrow from a friend or family member when:
- You are not confident that you will be able to maintain the agreed upon payment schedule
- You have concerns regarding your relationship with this person
- You have a negative history of any kind with this person