How to Avoid Bad Credit Loan Scams

Bad Credit Loan Scams

Having bad credit means you’re going to have a tough time getting a good loan. Many banks won’t even let you in the doors. Well, they’ll probably let you into the doors, and they may even let you use their restroom, but they’re not going to give you a loan.

Unless you have family who can help in the event of an emergency, you’ll have to turn to a bad credit loan. And that’s where many scammers come in. They know your options are limited and they’re shameless enough to take advantage of your desperation. That’s why you have to be always vigilant so you can get the best loan possible without getting ripped off.


Make sure they want to see your credit history.

Even if a lender is willing to loan to people with bad credit (or no credit) they should still be interested in seeing your credit score. It’s a bit suspicious if they aren’t at least curious about your past spending habits. As nationally recognized credit expert Jeanne Kelly (@creditscoop) told us: “Any company that says it doesn’t care about your credit history should be a warning sign. All credible lenders disclose that they will pull your credit report.”

Be aware, however, that not all credit checks are created equal. There are both hard and soft credit checks. A hard credit check will show up on your credit report and can actually make your bad credit even worse. A soft credit check will not show up on your credit report.

It’s a reassuring sign that a potential lender wants to perform a credit check, but you should try and find one who will perform a soft credit check, if at all possible.

A credible bad credit lender should also look for other proof of your ability to pay back the loan, whether it’s checking your bank account or requiring proof of income. Since most lenders use a good credit score as an indication that you’re going to pay back the loan, it’s suspicious if they’re still willing to lend to a person with a bad credit score and no other indication that the loan will be paid back.

Check those reviews.

Like any restaurant, museum, or spa, you want to check multiple online review sites before choosing a lender. Certified financial educator Maggie Germano (@MaggieGermano) emphasized the importance of performing your due diligence: “If you are being approached by a lender, be wary. You’ll want to do research and make sure they’re legitimate. Google the company or person’s name and see what comes up. Be especially on the lookout for complaints or bad reviews.”

Remember to check a wide range of reviews across Google, Facebook, the Better Business Bureau, and sites that specialize in lending reviews. Some scam lenders might try to fake reviews on one or two sites, but if their reviews are consistent across many different internet locations, there’s a better chance the perception reflects reality.

Customer service is a must.

A good lender shouldn’t be trying to hide anything from you. They should have a number you can easily call to have all of your questions answered. If they aren’t willing to give you as much time as you need to feel comfortable, then they don’t deserve your business. And don’t settle for some robot, either. You should be able to talk to a person. The robots haven’t taken over yet!

Any lender who tries to rush you into a decision should be treated with suspicion. If they’re really offering the best loan for your situation, they’d be willing to let you find out what your options are and be certain of your choice.

Look out for their location.

Different states have different lending laws, and you should familiarize yourself with them. Additionally, you should do some research and find out where the lender is located. If they’re located offshore or in First Nations territory, they may not be subject to the usual regulations, and you’re better off finding another lender.

Look out for those fees!

There are legitimate lenders who charge a fee to process your loan, but no lender should be making you pay a fee before you’re approved. According to Sally Elizabeth of Peopleclaim.com (@Peopleclaim): “Scammers will come up with any number of creative excuses for why you need to send them money and more money for that ‘pre-approved loan-insurance,’ the first month’s payment, good-faith payments, getting rid of an unfavorable item on your credit report… you name it. Demands will escalate until you realize you’re being scammed and you’ve lost as much as $2,000.”

A good lender will be willing to tell you EXACTLY how much you’ll have to pay in fees and interest once you’ve been approved, and won’t spring any surprise fees on you.

It’s hard trying to find the best loan possible when you have bad credit, and predatory scam lenders (like payday lenders) don’t make it any better. But by keeping these tips in mind and maintaining the proper skepticism and caution, you’ll be able to get the ideal loan for your situation.

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Contributors
Sally Elizabeth works for online dispute resolution platform PeopleClaim.com, helping people who are normally shut out of the legal system because of time or money. Weeding scams out from common consumer complaints has taught her way more about scammers than she ever wanted to know.
Maggie Germano is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit MaggieGermano.com.
Jeanne Kelly is an author, speaker, and coach who educates people achieve a higher credit score and understand credit reporting. #HealthyCredit is her motto. As the founder of The Kelly Group in 2000 and the author of The 90-Day Credit Challenge, Jeanne Kelly is a nationally recognized authority on credit consulting and credit score improvement.

How to Stay Safe With a Bad Credit Loan

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Have you seen all those stories recently about turkeys flying into people’s windshields? Yeah, we know, they’re really weird. But they also raise the question: what would you do if something like that happened to you? Would you be able to afford the car repairs (or your subsequent psychologist’s bills)?
If you’re one of the 6 out of 10 Americans who have less than $500 in savings, then the answer is: probably not. In that case, the odds are good that you’ll have to take out a loan to pay for the repairs. And if your credit isn’t so hot, you’ll likely be turning to a loan from a bad credit lender.

While your interest rates with a bad credit loan are almost always going to be higher than they would with good credit, these loans can still make a ton of financial sense if you’re in a pinch. The key is making sure you stay safe and avoid the predatory bad credit lenders that want to trap you in an unending cycle of debt.

Taking out a bad credit loan from the wrong lender could leave you feeling like a real turkey.

1. Research your options ahead of time.

Your chances of avoiding a predatory bad credit lender are better if you do your research before applying for a loan. And they’re much better if you do your research before you’re in a bind and pressed for time.

While researching potential lenders, check out their ratings and reviews from the Better Business Bureau to see if they’ve been accused of shady dealings in the past. You can also check with your local consumer protection agency to see if any complaints have been filed against them.

And don’t forget user review sites either! Head on over to GoogleFacebook, and LendingTree. If customers have had a bad experience or been subjected to misleading terms when signing up for a loan with this lender, they’ll let you know!

The Home Economist blogger and author Brett Graff (@BrettGraff) warns that you should “Be wary of a lender that’s not interested in your credit history, one that offers loans over the phone, or a lender using a name that sounds like a reputable bank. Many scammers do that to sound reputable but aren’t. Don’t deal with a lender who asks you to wire money or pay an individual. Stay safe by making sure the company has a physical address and check the phone number against the one online.”

Doing your research ahead of time will allow you to be thorough and methodical. Rather than just rushing through the first page of Google results for “Bad Credit Lender,” you’ll be able to calmly judge which lender is the best one for you.

You’ll want to make sure that you also compare rates between different lenders. Which brings us to #2 on our list …

2. Do the math!

A lot of bad credit lenders fall under the category of “payday loans.” This means that they offer short loans, ones that are usually meant to be paid back in only two weeks. The interest rates for these loans can seem pretty reasonable. Oftentimes it’s something along the lines of “$15 to $20 per $100 borrowed.”

But dig a little deeper and you’ll find that many of these loans are dangerously expensive compared to your other options. You see, these loans may only charge 15 or 20 percent, but that’s 15 or 20 percent over a short two-week span.

Many payday loan customers have trouble paying these loans off when they come due (that’s the downside of short repayment terms) and so they end up “rolling the loan over.” or extending the due date in return for an additional interest charge. Every time they do that, the cost of borrowing increases.

Measure payday loans according to their annual percentage rate, or APR, and you’ll see just how expensive they really are. A two-week payday loan with an interest rate of 15 percent has an APR of 390 percent! Yowzers!

3. Only borrow what you can afford.

If you are unable to make your payment with a payday loan, then you might be given the option of rolling the loan over. If loan rollover is illegal in your state (it’s banned in many places as a predatory practice), or if you’ve reached your rollover limit, you might also be forced to “reborrow” the loan.

Reborrowing means that you pay the loan off using money that you really need to use for other things, like utilities, car payments, or even rent. In order to make those other payments, you then take out a new loan almost immediately after paying the old one off.

Reborrowing and loan rollover are the twin engines that keep the payday debt cycle chugging along. Borrowers are constantly taking out new loans or extending old ones, putting more and more towards interest without ever being able to get ahead.

And, of course, the consequences of not paying back a loan are also pretty nasty. First, you’ll get sent to collections, which means your credit score will take a hit. Even if the lender didn’t check your score when you applied for the loan and doesn’t report your payments to the credit bureaus, the collections agency will inform the bureaus when they take over your account. It’s pretty much a lose-lose.

(Debt collections agencies have a pretty nasty reputation and there are lots of stories out there about debt collectors acting abusively. To learn more about your rights when dealing with a debt collector, check out our blog post: What Debt Collectors Can and Can’t Do.)

If you are still unable to repay your loan, the collection agency will likely take you to court. If the ruling goes in their favor, then they are able to garnish your wages until the debt is fully paid off.

Bottom line: Before you take out a loan, be certain that you can actually afford to make your payments.

Make the lender explain—in as much detail as possible—what your payment schedule will be. And keep in mind that payday loans are designed to be repaid all at once and ask yourself: if you need a $400 loan right now, do you think you’ll really be able to afford a $480 payment ($400 plus 20 percent interest) after only two weeks?

You’ll probably be better off choosing a long-term installment loan. Sure, you won’t get out of debt as fast, but you’ll pay the loan off in series of smaller, regularly scheduled payments. Plus, most of these loans are amortizing, which (long story short) means that you’ll be paying less in interest over time.

A loan is supposed to help you get your finances together. What’s the point of a loan that leaves you worse off than you were before you borrowed it?

Speaking of which …

4. Find a loan that actually helps your credit!

As we mentioned earlier, tons of bad credit lenders out there don’t report your payments to the credit bureaus. While that might not mean a whole lot to you, it’s actually kind of a big deal.

“Your payment history is the most important factor in the consideration of your credit score,” says Kerri Moriarty, one of the founders of Cinch Financial (@CinchFinancial). “The more months you can demonstrate good payment, the faster that bad month (or months) will move off your credit report. It also gives creditors more to evaluate. Let’s say you were using a credit card and missed a payment; creditors can see you missed a single payment in months and months of payments as opposed to seeing that you missed a payment and haven’t used the card since.”

But here’s the thing, if a bad credit lender isn’t reporting your payments to the credit bureaus, then you’re not getting any credit for those payments. Sure, you should be paying them on time anyway, but still, it would be nice to get credit on your credit!

5. Focus on improving your credit score!

Really though, the best way to stay safe with a bad credit loan is to qualify for a loan with better rates!

We already mentioned the importance of making your payments on time. But there are other things you can do to improve your credit as well.

For instance, Moriarty recommends getting a secured credit card: “A secured card requires you to put down a deposit in cash in order to receive the line of credit. It’s basically the creditor’s way of ensuring that there is at least something they will get back in the event that you fail to pay.

She says that “Using a secured card for a few months to a few years lets you demonstrate good credit behavior while the company has no risk. After a while, the card company is likely to offer to upgrade you off of the secured card to the standard, unsecured card—returning your deposit, and graduating you to a rewards card.”

Moriarty also recommends that folks looking to raise their credit score “Make it a point to keep an eye on their utilization. In consideration of your credit score, creditors look at how much of your available credit limit you’re using at any given time— anything around 15% to 30% is pretty good. When you’re using more than 30%, creditors tend to get a little nervous.

“In your rebuilding time, it’s worth keeping a close eye to keeping everything under that 30% line each month,” says Moriarty. “It shows you’re responsibly managing the amount that’s been extended to you – and could even handle more in the future!

Want to learn more? Then check out our recent blog post: 15 Tips for Improving Bad Credit.


Contributors

Brett Graff (@BrettGraff) has been seen writing and reporting on money and personal finance in The LA Times, Yahoo! Finance, Cosmopolitan, The New York Times and the Fiscal Policy Institute, to name a few. Brett also provides her insight in the column, The Home Economist, which is nationally syndicated and published in newspapers all over the country. Her book “NOT BUYING IT: Raising Happier, Healthier & More Successful Kids” is now available!

Kerri Moriarty is part of the founding team at Cinch Financial (@CinchFinancial), a Boston-based startup building autonomous fiduciary software. Prior to Cinch, she worked as a financial advisor helping individuals plan their financial lives in the long and short term. Being one of those mysterious millennials, she manages most of her life across 5-6 apps on her phone and recognizes no such technology exists for her everyday financial decisions. Big companies have CFO’s working for them – why shouldn’t you? That’s where Cinch comes in.

15 Tips for Improving Bad Credit

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If you have bad credit, or you know someone with bad credit. There’s no shame in it! The average American is given very little information about how their credit score works, so it isn’t surprising that many people have less than perfect credit. Unfortunately, that means your options for getting a loan will also be less than perfect, to put it mildly.
That’s why it’s important to build your credit rating and we’ve got not one, not two, not three through fourteen, but fifteen tips for building your credit!

1. Get a copy of your credit report.

As we said, keeping up your credit score can be tough. So you definitely don’t want to suffer because of mistakes that other people made. Federal law requires the three major credit agencies to create a copy of your credit report that you can review. You can get that report through AnnualCreditReport.com, the only official government approved site for receiving your credit report. Check it for errors and contact the credit agencies if you need to dispute something. Don’t become the victim of someone else’s goof up.

2. Make your payments on time!

Is this obvious? Sure. But it’s also the most important way to maintain your credit score, so we couldn’t just leave it out! Howard Dvorkin (@HowardDvorkin), CPA and chairman of Debt.com, put it frankly: “There’s no secret to really improving your credit score. Since 65 percent of your score is determined by payment history and credit utilization (in English, how much available credit you’ve maxed out) all other tips are only going to help you in tiny blips. The first and best way to bulk up your credit score is to start making your payments on time.”

And he’s not the only one who told us that! Greg Rable, CEO and founder of FactorTrust (@FactorTrust), says, “It’s basic, but it’s critical to make loan payments on time. It demonstrates both the ability and willingness to pay your debts. This helps consumers get the credit they deserve and improve their credit scores based on their performance.” He also offered CreditClimber.com as a resource to check out.

3. Consider a secured credit card.

Having bad credit can be a bit of a chicken and egg situation. A properly used credit card can be a good way to build your credit rating, but you need good credit to get approved for a credit card. A secured credit card might be the solution for you. You’ll have to put up some money as collateral, but it’s worth it to fix your credit. Once you have the card, you can buy all the chicken and eggs you can afford, as long as you make your payments on time.

4. Don’t put too much on that credit card. 

OK, you know how we just said you should use your secured credit card to buy all the chicken and eggs you can afford? Well, we spoke too soon. Only use it for SOME of your chicken and eggs (and whatever else you’re buying….ketchup maybe?). Author and debt law expert Gerri Detweiler (@GerriDetweiler) sets the record straight: “If someone has low credit scores, the first thing I would tell them to look at is their balances on their revolving accounts such as credit cards. High balances mean high ‘debt usage,’ and that can affect their credit scores. It’s not the amount of the balances that matters as much as the balance in comparison to the credit limit. It’s generally a good idea to keep your balances below 20-25% of your available credit on each card. Also, keep in mind that most issuers report balances at the end of the billing cycle (when the amount you owe is calculated)—not after your payment is received.”

5. Ask about credit reporting. 

Wouldn’t it be nice to be rewarded for just doing the stuff you should be doing anyway? Well, in one narrow sense, you can be! You can try to have different service providers you pay bills to report your payments to the credit bureaus.

It worked for Bradley Shaw (@ExpertBrad), a digital marketing expert at SEOExpertBrad.com. “Once I cleaned up my credit history, I started looking for ways to build it,” Shaw told us. “I did this by looking for credit lines that could have been included in my file, but weren’t. For example, I’ve had a cell phone in my name for 10 years, but those payments didn’t appear on my credit report. So I made a list of every company I paid monthly, contacted the companies, and asked them to report my payment history to the credit bureaus. Below are the types of companies that were willing to report on my behalf:

  • Cell phone provider
  • Cable and internet provider
  • Utility company”

Of course, this only works if you’re making your payments on time, so once again make those payments on time

6. Get a credit building installment loan.

Taking out a personal installment loan that you can afford to repay can actually improve your credit—if that lender reports to the credit bureaus.

These lenders will report your payments to the credit bureaus, so you can actually build your credit score and qualify for better rates the next time you need a loan. As long as you’re making your payments on time, that is. Have we been bringing that up too much? Maybe. But counterpoint: you have to make your payments on time.

7. Wait on larger purchases.

Nationally recognized credit expert Jeanne Kelly (@Creditscoop) told us: “Having bad credit is expensive. Many times you need to focus on building a better credit score before committing to a large loan. Do your math, see how much the interest rate on a loan is costing you with different scores. See if it makes sense to purchase that new car, new home now or if it is wiser to take some time to work on building better credit.”

8. Stay motivated!

Paying super high-interest rates for a loan is not particularly fun, even if the lender is helping you build your credit. That’s why Kelly recommends you try to take that frustration and use it as an incentive to press on harder in your quest to build up your credit: “We know that we usually are not thinking about our credit until we need it. So, sometimes we get stuck needing a new car loan with a lower score because we have no other option. If that is the case, then try to learn from that higher interest rate and work on focusing on your credit so you can maybe refinance that loan in a year. Don’t just take the higher rate and continue with poor credit habits, learn from it.” You can also learn more about setting and meeting financial goals in OppU.

9. Set up autopay and reminders. 

Remember how important we said it was for you to make your payments on time? Well, one good way to do that is to set a reminder on your phone or similar device (a well-trained parrot, perhaps) to noisily let you know your bills are due. Even better, find out if you can set up an autopay system to automatically pay your bills on time. Or you could just read this article every day. Because this article has a lot of reminders about paying your bills on time.

10. Pay off your debt!

Do you have debts? You’re going to want to pay those off as soon as you can. You probably know that. You’re a smart person. And if staying out of debt was easy, no one would be in it. But in the long run, you’ll be glad you got out of debt as soon as you could, and so will your credit report.

11. Don’t be afraid to ask for help!

Paying off your debts and keeping up with your necessary payments can be difficult. No one likes asking friends or family for monetary help. But if they can help you build up your credit score now, you’ll be in a better position to help them down the line, if they ever need it. You’re better off asking for help sooner, when you have a bad credit score and manageable debt, then later, if things take a turn for the financial worse. You can learn more about fixing your credit in our blog The Journey to Turn Your Credit Around.

12. Don’t get sent to collections. 

Look, we’ve already told you once or twice that it’s important to make your payments on time. But missing a payment entirely is even worse. That will lead to your balance being transferred to collections. And then things get bad. The collection agency will report your lack of payment to the credit bureaus and that will be a negative mark on your credit report. A negative mark that lasts for seven years. Yep. It’s like breaking a mirror over your credit report.

12. Go for the soft credit checks! 

Even applying for a loan can leave a negative impact on your credit score, if the lender performs what is known as a “hard credit check.” If you have to apply for a loan with bad credit, consider only applying to lenders who perform “soft credit checks.” These won’t impact your credit score, so you can find out if you qualify for the loan with less worries.

14. Avoid payday lenders! 

Theoretically, you can use payday lenders in a responsible way. If you take out the loan and pay it back in full with all fees and interest in the very short payment time you’re allotted. But that’s a very risky prospect and if you don’t make that payment, you’ll be forced to pay to extend the loan. That’s a great way to get yourself trapped in a cycle of debt, and a cycle of debt is not a good look for your credit report. 

15. Make your payments on time! 

We’re serious!

It’s the best and easiest way to stay ahead of debt and keep your credit score moving in the right direction.

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Contributors

Gerri Detweiler’s passion is helping individuals cut through credit confusion. She’s written five books, including the free ebook Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and her latest, Finance Your Own Business. Her articles have been widely syndicated and she’s been interviewed in over 3000 news stories. She serves as Head of Market Education for Nav, the first and only site that shows small business owners their free business and personal credit scores and tools for building strong business credit.

Howard S. Dvorkin is a two-time author, personal finance expert, community service champion and Chairman of Debt.com. As one of the most highly regarded debt and credit expert in the United States and has played an instrumental role in drafting both State and Federal Legislation. Howard’s latest book “Power Up: Taking Charge of Your Financial Destiny” provides consumers with the detailed tools that they need to live debt free and regain their financial freedom. Howard has appeared as a finance expert on CBS Nightly News, ABC World News Tonight, The Early Show, Fox News, and CNN.

Jeanne Kelly is an author, speaker, and coach who educates people to help them achieve a higher credit score and understand credit reporting. #HealthyCredit is her motto. As the founder of The Kelly Group in 2000 and the author of The 90-Day Credit Challenge, Jeanne Kelly is a nationally recognized authority on credit consulting and credit score improvement.

Greg Rable brings more than 20 years of strategic development, management, and technology experience to FactorTrust, along with extensive experience in electronic payment, online commerce, and communications. Since founding FactorTrust, Greg has overseen rapid growth in the US and expansion of our services to both the UK and Canada.

Bradley Shaw is a Digital Marketing specialist for businesses that want to see their Google search rankings surge. Based in Dallas, TX he has more than 20 years experience in Online Marketing. Currently, he is the President of SEO Expert Brad Inc.

Credit Tier Breakdown, Part 4: Bad Credit

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Do you know your credit score? Many of your potential lenders (and even landlords) do!
So if you’ve been avoiding checking your score because you think it’s “bad”, let’s learn the truth.

A brief primer on credit score ranges

Credit scoring agencies have generally stuck with a system of Bad—Excellent,” say Ian Atkins, an analyst and staff writer for Fit Small Business (@FitSmallBiz).

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“That scale can be useful,” says Atkins. “But lenders tend to use a different kind of shorthand that takes into account not only credit history but also other factors, like income and net worth.”

Prime and super prime (or good and excellent) borrowers are those judged to have very low risk of default,” Atkins says. “That means low debt to income ratio, low debt to credit ratio, great payment history, long credit history, and good mix of credit types. These borrowers get better rates, better terms, better rewards and incentives, and lower fees on everything from credit cards to mortgages. In other words, it pays to be prime.”

On the other hand, having bad or poor credit—basically a score under 630—and landing in that subprime range doesn’t pay at all. In fact, it’s quite the opposite. Having a score in this range means that you will be the one paying more—through higher interest rates and larger down payments.

What Kind of Loans Can You Get?

With a score under 630, loans from a traditional lender are pretty much off the table. Banks will deem you too big a risk to lend to at the rates that they are able to offer. You might have better luck with a credit union, but even then, you’re probably going to come up empty-handed.

You will likely not qualify for a mortgage either, although a score of 600 or above might qualify you for a subprime mortgage. These mortgages come with much higher rates than normal mortgages, and some of them come with rates that are “adjustable.” More on those later.

One type of traditional loan that you can qualify for even with a score below 600 is a subprime auto loan. The story here is much the same as the one for subprime mortgages. You will pay much higher interest rates, and you will likely be asked to put down a larger down payment in order to secure the loan.

When it comes to credit cards, you will see the number of offers you receive in the mail go down if your score drops into this range. And the offers you do receive will come with much lower credit limits, high-interest rates, and might even be for “secured” cards that require collateral.

Basically, if you have bad credit and need to borrow money, your options are going to be limited and your rates are going to be high. If you have a score under 600, pretty much the only loans you’re going to qualify for are “bad credit” and/or “no credit check” loans.

What are Bad Credit and No Credit Check Loans?

When it comes to bad credit and no credit check loans, you’re going to want to be careful. While there are many legitimate lenders who lend to folks with bad credit, there are also lots of predatory lenders who are simply looking to take advantage of folks who don’t have many options.

Regardless, the principals for these loans could be smaller than traditional loans, and the interest rates could also be much higher.

The reason for this is simple: the lower a person’s credit score, the bigger risk they pose to a lender. A score below 630 indicates that you have a history of not making payments on time, taking on too much debt, and maybe even defaulting on loans entirely.

Bad credit lenders need to charge higher rates in order to guard against the higher rate at which their borrowers will default on their loans. If the lender didn’t do this, they would go out of business.

The two most common kinds of bad credit loans are payday loans and title loans. Both are short-term loans that come with average interest rates around 300 percent.

Payday loans are small-dollar loans that only average about 14 days, and they are often “secured” by a post-dated check that the borrower makes out the lender for the amount owed. On the due date, the lender deposits the check, and the loan is repaid.

The appeal of payday loans is that borrowers are able to pay the loans back quickly, but those short payment terms can also make a loan harder to repay. Since borrowers have to pay the loan back in full—instead of paying it back a little bit at a time like they would with an installment loan—the short turnaround can leave them without the necessary money.

In situations like this, the payday lender will then offer to roll the loan over, meaning that the borrower pays only the interest owed on the loan and then gets a new repayment term… complete with an additional interest payment. Rolling a loan over multiple times can drastically increase the cost of borrowing, all while leaving the borrower no closer to paying back the principal than they were when they first took it out!

With title loans, the borrower puts up their car, truck, or motorcycle as collateral. This allows someone to borrow a larger amount of money, but it also means that they will lose their vehicle if they can’t pay the loan back. The average term for a title loan is one month, and the average interest rate is 25 percent. With high rates and short terms, loan rollover can be a big problem for title loan customers as well.

There are also many lenders, like OppLoans, who offer installment loans to people with bad credit. These loans come with longer repayment terms than payday or title loans, usually somewhere between three and six months. Installment loans are paid off in a series of equal, regular installments, which can make paying the loan off a more manageable process.

The term “no credit check” loans describes loans in which the lender does not perform a credit check during the application process. A “hard credit check” can temporarily lower a person’s score, which makes no credit check loans appealing to folks who already have bad credit.

Some bad credit lenders do perform a “soft credit check” during the application process (OppLoans is one of them), which returns less information than a hard check, but does allow the lender to get a basic snapshot of the borrower’s ability to repay their loan.

In general, a lender who performs a “soft credit check” is preferable to one who performs no credit check at all. It shows that the lender is considering your ability to repay your loan the first time instead of hoping you roll it over again and again and again.

What kind of interest rates can you get?

According to the MyFico Loan Savings Calculator, a person with a 620 score who took out a $300,000, 30-year, fixed-rate mortgage would get an interest rate of 5.51 percent and would pay over $103,000 more in interest than a person with a score of 760.

However, some subprime mortgages have interest rates higher than that. In 2014, CNN Money reported that some subprime mortgages were being offered with rates from 8 to 10 percent. These mortgages also required a larger down payment, between 25 to 35 percent of the home’s total value.

The thing to really watch out for with subprime mortgages is rates that are “adjustable.” Oftentimes, these mortgages start with a low “teaser rate” that can make the mortgage seem much more affordable than it really is.  When the teaser rate expires, these adjustable rates will shoot up, taking your monthly payments with them. This can lead many borrowers to default. (Adjustable rate mortgages were a huge factor in the financial crisis in 2008.)

The MyFico Loan Savings Calculator also estimates that a person with a credit score of 550 would pay an interest rate of 15.159 percent for a 30,000, 60-month auto loan. They would end up paying over $10,000 in interest more than a person with a score of 720 and an interest rate of 3.519 percent.

When it comes to unsecured personal loans, people with bad credit will generally be looking at an above-36-percent APR lender. This means that the annual interest rate that you pay on your loan will be above 36 percent, or 3 percent per month. While there are above 36 percent that will give you fair terms, reasonable rates, and good customer service, there will also be lenders in this space that are looking to take advantage of you—so be careful!

With payday and title loans, the interest rates you’ll get will vary from lender to lender and (more importantly) from State Financial Resource Guides state to state. But even though the rates will vary, they are still going to be incredibly high.

A 14-day payday loan with an interest rate of $15 per $100 borrowed would carry an APR of almost 400 percent! Meanwhile, a title loan with an interest rate of 25 percent per month would have an APR of 300 percent.

Payday loans are generally the most expensive and risky ways for people with bad credit to borrow money. Do your research when shopping for a bad credit and no credit check loan to make sure that the lender you’re working with is going to give you the best possible rates and most reasonable terms.

What can I do to raise my credit score?

“I’d like to be optimistic about purchasing power of a person with a score below 550,” says Roslyn Lash AFC®, (@RosLash) Founder of Youth Smart Financial Education Services. But she adds that “their life in terms of credit will be poor.”

Here are four actions that Roslyn recommends people with poor scores can take to repair their credit:

  1. Prepare a Budget. This is the first step because it will tell you how much money you have left after reducing non-essentials. This extra money can be applied toward your bills.
  1. Pay all your bills on time. Make a schedule of when your bills are due and use e-bills and auto-pay to make sure that you pay the correct amount when it’s due.
  1. Eliminate debt! Check out the debt elimination plan outlined at PowerPay.org, and also look at strategies like the Debt Snowball and the Debt Avalanche. Whatever you decide to do, you need to make a plan, and then stick to it
  1. If you need assistance, seek financial coaching.

If you have additional questions about credit scores, personal finance, or getting a loan with bad credit, hop on over to our Resource Page and have a look around. If you don’t see what you’re looking for, then let us know by sending us a tweet at @OppLoans!

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN | Google+


Contributors

Ian Atkins (@FitSmallBiz) is an analyst and staff writer for Fit Small Business. He covers small business finance with a focus on traditional and alternative small business lending. Ian has over 9 years working in personal and small business finance.

Roslyn Lash, (@RosLash) is an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services.  She specializes in youth financial education, adult coaching and works virtually with adults helping them navigate through their personal finances i.e. budgeting, debt, and credit repair.  Her advice has been featured in national publications such as USA Today, TIME, Huffington Post, NASDAQ, Los Angeles Times, and a host of other media outlets.

How to Avoid the Typical High-Interest Rates of Bad Credit Loans!

High-Interest Rates of Bad Credit Loans

If you have bad credit and you need a personal loan, you might expect to face some pretty extreme interest rates. Wondering why that is and what you can do about it?
Well, we’ve got the answers for you!

How do interest rates work anyway?

Let’s start with the basics to make sure everyone is caught up. Any loan (other than one you might get from a friend or family member) is going to charge interest. Interest is calculated as a percentage of the total loan amount, or principal, and it’s how the lender makes a profit on the loan.

For example, if you take out a $1,000 dollar loan with a 5% annual interest rate, you’ll have to pay $50 in interest if you pay back the loan in one year, $100 if you pay off the loan in two years, etc.

Of course, that’s assuming simple interest, rather than compound interest. Check out the difference between those in our Financial Terms glossary.

Interest is how lenders make money which is (don’t forget) what lenders want to do.

Why does your credit score matter?

Many lenders view the world like a giant casino (where borrowers are the slot machines). Unlike regular slot machines which barely ever payout, borrowers payout nearly every time—just not that much, however. Maybe just a few cents per dollar put in, but the lenders know those cents are guaranteed, so they’ll keep lending (and collecting).

At the other side of the casino are slot machines that also payout a few cents but only half the time. No one is using these machines, because why would they? So management cranks the payout on those machines way, way up. Now they’re paying out 50 cents per dollar put in. And these lender-gamblers (lenblers?) start using them. Sure, they might not always get a payout, but when they do, it’s big enough to make up for their losses.

A borrower’s credit rating is essentially a prediction, based on past behavior, of how likely that borrower is to pay back their loan and interest. A lender assumes a lower credit rating means a borrower is less likely to pay back the loan, so they’ll only lend to that borrower if the payout is big enough to make up for all the other lenders that won’t pay back. So how do they ensure a bigger payout? By raising up those interest rates.

But you’re not a slot machine, you’re a human being! 

Of course, a good lender shouldn’t see their borrowers as “slot machines.” A good lender should be willing to do whatever they can to get you the best rate possible, even if it means they might end up collecting less on your personal loan. A good lender also knows that a credit rating isn’t the only way to judge whether someone can pay back a loan or not. So how can you find a good lender?

Nationally recognized credit expert Jeanne Kelly (@creditscoop) says, “Make sure you do your research on the company and the account you are applying for.”

Avoid lenders who perform “hard credit checks” which can ding your credit. Instead, you’d be better off seeking a lender who performs a “soft credit check,” which will not appear on your credit report. You should find a lender who gives you the best rates they can with your situation and is willing to work out a payment plan you can handle.

Other ways to look for the good lenders include checking out their online reviews. Are their customers happy with them and their products, or do they feel scammed?

Also, check the Better Business Bureau ratings. A high accreditation will help identify legitimate businesses, while bad reviews (or no accreditation) can signal dangerous lenders. James Sinclair, a manager at Trade Financial Global (@tradefinglobal) warns: “In relation to spotting a dangerous lender, look at the clauses they add to an agreement. Especially in relation to a missed payment- what will the effect be? What is the penalty? Understand the downside risk. It is important to understand the documents you are signing.”

Summing it all up:

Kelly suggests: “If you are tired of having no credit or a low credit score, start to rebuild with a secured credit card that will report to Experian, Equifax & Trans Union. You can start to build a good history on the new account and keep balances low.”

If an emergency comes up before your credit is fixed, be sure the lender you work with doesn’t just see you as a slot machine. Find a lender who will work with you and report your payments to credit agencies, so you can get a more affordable personal loan to help build your credit.


Contributors

Jeanne Kelly is an author, speaker, and coach who educates people to help them achieve a higher credit score and understand credit reporting. #HealthyCredit is her motto. As the founder of The Kelly Group in 2000 and the author of The 90-Day Credit Challenge, Jeanne Kelly is a nationally recognized authority on credit consulting and credit score improvement.

James Sinclair, is a manager with Trade Finance Global. Trade Finance Global (TFG) is an international company focused on structured debt. They use their relationships with banks and alternative finance houses to structure and negotiate trade lines for their clients. There are more details online at TradeFinanceGlobal.com

The ABCs of Bad Credit Loans

The ABCs of Bad Credit Loans

If you have bad credit, you’re likely worried about finding a loan. And you have good reason to be! No matter how your credit ended up in an unfortunate place, trying to find a good loan with bad credit is like making your way through a financial minefield. If only there was a list of tips, maybe even one for every letter of the alphabet, that would allow you to get the best “bad credit loan” you can.
Well, you’re in luck, because not only does such a list exist, but we’ve included it below! Go through each letter and you’ll be ready to find the loan that’s best for you.

A IS FOR APR

When you’re considering loans, it’s not enough to just look at different interest rates. A simple interest rate can hide all sorts of hidden fees. Instead, you want to compare loans in terms of their annual percentage rate, or APR. The APR is a number that takes interest, fees, and all the other costs of a loan and puts them in one number to allow proper comparison between different loans. That way you don’t have to worry about doing all sorts of complex math to compare different loans.

B IS FOR BAD CREDIT

Bad credit can be a big obstacle to getting a good loan. Jake Sabatino (@LiaisonTech), the PR outreach manager for Liaison Technologies, told us what is considered a bad credit score: “If your credit score is below 620, you have bad credit—meaning it will be difficult to get approved for most loans.” This is what sends most people in search of a “bad credit loan.”

C IS FOR COLLATERAL

Lenders use your credit score as an indication of how likely you are to pay back a loan. Some lenders will be willing to accept collateral if you don’t have a good credit score. Collateral is an object of value that you’ll have to turn over to a lender if you don’t keep up with your payments. That way the lender isn’t taking as big a risk because they know they’ll be able to get something whether the payments are made or not. If you’re considering a title loan, they’ll want your car as collateral. Can you afford to lose your car just for a short term loan?

D IS FOR DEBT TRAP

A good lender wants the borrower to pay back their loan. Once the borrower pays back the principal and interest, they aren’t stuck in debt and the lender gets their money back plus interest. It’s a win-win! But that’s not enough for some lenders. They’d rather you not be able to pay back your loan in time, forcing you to pay a rollover fee to extend your loan. This will lead you into a cycle of debt, meaning that paying your loan back becomes increasingly difficult, and ultimately, impossible.

E IS FOR EMPTY PROMISES

Many dishonest lenders will try to take advantage of you (they know your lower credit score leaves you with fewer options, so they think you’ll settle for their unfair deals). These bad lenders will do whatever they can to try and rush you into signing up for a loan that could put you in an even worse position than you are to begin with. It’s important that you ask whatever questions you need and take whatever time you’re able to find the loan that works best for you and your current situation.

F IS FOR FICO SCORE

Your FICO score is the most commonly used credit score, and it’s the one that lenders are most likely to use. Do you know what makes up that FICO credit score? The largest portion is your payment history: Do you pay back your debts on time? The next largest portion is your amount borrowed. Following that, there’s the length of your credit history: The longer your history (if it’s been good) the better. Finally, there’s your credit mix (the kinds of credit you have) and your new credit inquiries. Too many new credit inquiries in a short time will reflect negatively on your credit score.

G IS FOR GOOD CREDIT

All right, so Jake Sabatino told us what bad credit looks like, but did he tell us what a good credit score is? Of course he did: “If you have a credit score between 620 and 699 you have fair credit. Anything above 700 is good credit and you’ll start to see better interest rates for approved loans at this level. To improve your credit score, pay off your debts and your credit card balances each month.”

Your best option when looking for a loan is to build up your credit score first. But emergencies happen, and sometimes you’ll have to find the best bad credit loan you can.

H IS FOR HARD CREDIT CHECK

To find out what your credit score looks like, a potential lender will perform a credit check. But is it a hard credit check or a soft credit check?

We asked Dawn McCraw (@GoCleanCredit) co-owner of Go Clean Credit, to explain the difference between the two: “Hard inquiries can lower your credit score by a couple of points and might remain on your credit report for two years. Luckily, as time goes on, the damage to your credit score typically decreases or vanishes altogether—often even before the hard inquiry disappears from your report.”

And soft inquiries? “On the other hand, your score won’t be impacted by a soft inquiry. This type of inquiry can occur when you get a copy of your own credit report (You can check your own credit history as many times as you’d like, and it won’t impact your score.) This is because you are not viewed as looking for new credit. Rather, you are demonstrating responsible credit management practices. Soft inquiries will also not appear for lenders who pull your credit history.”

Be sure that if your lender is performing a credit check, it’s a “soft” credit check, which won’t affect your credit score.

I IS FOR INTEREST

You’ll have to pay interest on any loan you take out, but the better your credit, the less interest you’ll have to pay. Of course, that means the worse your credit, the more interest you’ll have to pay. This is, unfortunately, a pretty unavoidable reality when you have bad credit. Try to get the best rate you can find (remember to compare in terms of APR) and avoid compound interest, if at all possible because it grows far faster than simple interest and can quickly snowball.

J IS FOR JUST GET WHAT YOU NEED

Most bad credit lenders are likely to set you up with some pretty high-interest rates. That’s why it’s important to only take out the amount you need. Since interest is charged as a percentage of the loan, the more you take out, the greater the interest will be. So only take out what you need to handle whatever financial emergency you’re dealing with at the moment.

K IS FOR KEEP TRACK OF YOUR CREDIT REPORTS

Sometimes your bad credit might be due to errors. That’s why it’s important to keep track of your credit report and contact the credit bureaus if you find any mistakes. You already have to worry enough about managing your credit when everyone is doing their job as they should. There’s no reason you should have to suffer because of someone else’s mistake.

L IS FOR LOAN FEE

APR is important because there can be costs associated with a loan that aren’t shown in the interest rate. Aside from the rollover fee you’ll have to pay if you need to extend a loan, some loans will charge you a fee when you take out the loan, and you’ll likely have to pay fees if you’re ever late on any payments. Always read the fine print and check the APR so you can figure out exactly what you’ll have to pay.

M IS FOR MORTGAGE

You likely remember the sub-prime mortgage crisis. Lenders gave mortgages to anyone they could, without any thought about whether they’d be able to pay it back since they were planning to just turn around and sell that debt to someone else as soon as the papers were signed. It didn’t turn out well for anyone. But some mortgage providers didn’t learn their lesson and will still try and do whatever they can to get you into a mortgage you might not be able to afford. Given that a first mortgage is rarely an emergency expense, you’re probably better off getting your credit up before applying for one, rather than letting someone sweet-talk you into bad terms.

N IS FOR NO CREDIT CHECK LOAN

Have bad credit? Some lenders will give you a loan without performing a credit check. With these “no credit check loans“—ideally—, the lender will still want to verify you have the income to pay back the loan. If they don’t, they’re likely trying to trap you into the sort of loan you don’t want to get yourself into.

O IS FOR OUTCOMES

At the end of the day, you want the loan that will leave you with the best outcome. Figure out what payment terms you’ll be able to handle that will result in paying the least interest. However, it might still be worth paying a greater amount of interest in the end if the alternative is payment terms too short to manage. Better off paying more interest over time than going into serious debt!

P IS FOR PAYDAY LENDERS

This is the important one. No matter what you do. Do NOT get a payday loan. Really. Payday lenders offer incredibly high interest rates and short payment terms designed to get you into the sort of debt trap we described earlier. Avoid these at all costs!

Q IS FOR QUESTIONABLE PRACTICES

Seriously, avoid those payday lenders.

R IS FOR RENTAL ASSISTANCE

One common reason why people with bad credit might suddenly need a loan? Trouble making rent. Before you try and find the best lender you can, it might be worth checking online to see if you qualify for any government rental assistance programs. If not or if you still need help, it might be time to go lender hunting.

S IS FOR SECURED LOAN

A secured loan is one that requires collateral. Secured loans tend to have better rates compared to unsecured loans, but you risk losing your collateral if you can’t make the payments.

T IS FOR TITLE LOAN

Title loans require you to turn over the deed to your car as collateral. Go ahead and avoid these. Unless you somehow have an endless supply of cars hanging around.

U IS FOR URGENT NEED

Getting a bad credit loan is always going to be worse than getting a loan with good credit. But sometimes emergencies happen.

V IS FOR VET YOUR LENDER

Look up any potential lenders online and see what other people have said about them. You want to know who you’re dealing with before you start dealing. Once you sign up you’ll be stuck with them until your loan is paid off, so do your homework beforehand.

W IS FOR WARNING SIGNS

There are certain signs that suggest you should look elsewhere when considering a lender. We already mentioned that you’re in for a bad time if they aren’t concerned at all about your ability to pay back a loan. Randall Yates (@the_lenders_net), CEO and founder of The Lenders Network, offers another warning sign: “If you’re having trouble getting approved for a loan with other lenders, or lenders are telling you that your chances of getting approved are low, be careful when speaking to a lender that claims they will get you the loan easily. This is a sign that the lender is just trying to get a loan to stick. Your odds of approval aren’t any higher with this lender than any other lender. They’re usually just trying to throw your loan into processing and hope it sticks. This can cause consumers a lot of headaches and waste a lot of time.”

X IS FOR XTREMELY SHORT PAYMENT TERMS

On the one hand, short payment terms mean less interest will build up. But the kind of payment terms payday lenders offer are so short, you’re likely to get stuck having to pay “rollover” fees to extend your loan, trapping you in a terrible cycle of debt.

Y IS FOR YOU CAN DO IT

We know it’s tough, but we believe in you! If you do your research and compare different lenders, you’ll find the best loan that works for you right now. We also trust that you’ll be able to get your credit score back up.

Here are a couple tips from Randall Yates to do just that: “Make sure your credit card balances are low. Credit utilization ratios account for 30% of your FICO score. If you carry high balances on your credit cards, it is really hurting your credit score. Pay your balances to less than 15% of the credit limit to ensure you are maximizing your credit score.”

Z IS FOR ZERO

Zero is the number of words related to “bad credit” that start with the letter “z.”


Contributors

Dawn McCraw is a co-owner of Go Clean Credit and deeply passionate about consumer credit rights. She is an expert in credit reports and scores and establishing credit history as well as the Fair Credit Reporting Act, Fair Debt Collection Practices Act, and other credit and collection laws. Dawn is a certified expert witness for credit litigation, FCRA Certified, and FICO Pro Certified. She is also currently in law school pursuing her Juris Doctorate.

Jake Sabatino is currently the PR Outreach Manager for Liaison Technologies. He is also a licensed loan officer with 5 years of mortgage experience.

Randall Yates, is the founder and CEO of The Lenders Network, an online mortgage marketplace that helps homebuyers find reputable mortgage lenders. As a part of Randall’s successful entrepreneurial career, he spends a chunk of time helping consumers understand their credit and lending his mortgage expertise to help them find the right type of loan. Randall Yates lives in Dallas, Texas with his two sons.

When Are Bad Credit Loans Dangerous?

bad-loans-1024x262

Most people know that you need good credit to get a low interest rate on a personal loan. Fewer people know what to do when they need that personal loan but their credit is… let’s say, imperfect.

If this describes you, then you may find yourself looking for a “bad credit loan.”

Now, maybe you’ve heard that bad credit loans are dangerous. That’s because many of them are! Predatory lenders know that folks with bad or no credit are often desperate for money to cover unexpected expenses like car repairs and medical bills. If you have a financial emergency and no savings or credit to rely on, then you’re more likely to let yourself get walked into a bad loan that will eventually trap you in a cycle of debt.

But not every bad credit loan is the same. While some are predatory and dangerous, there are others that can get you through your financial emergency in a safe and financially responsible way. So how can you tell the difference? The next time you need a bad credit loan, be sure to ask your lender


IF THEY WANT YOU TO PAY AN “ADVANCE FEE”…

Lenders judge how likely a borrower is to repay a loan based on their credit rating. If a potential borrower has “good credit“, then they’re likely going to pay what they owe. If a potential borrower has “bad credit“, then they’ll be considered a riskier prospect. A lender might be willing to look past a bad credit score if they can verify your income and ability to repay your loan at the end of the term. But if they want you to pay something in advance of the loan, something is definitely up.

Brett Graff (@BrettGraff), writer at The Home Economist and author of Not Buying It: Stop Overspending and Start Raising Happier, Healthier, More Successful Kids explains the risk: “If you have bad credit, you may be tempted by advance-fee loans. Here, the lenders tell you they guarantee the loans and they don’t care about your credit history, but they are total scams. Real, legitimate lenders always care about creditworthiness and scammers tell you what you want to hear, take your fee, and disappear.”

Advance-fee loans are, unfortunately, an increasingly common scam. The “lender” may be an online outfit that looks legitimate at a glance. They tell you your credit score isn’t a problem, so long as you pay an “application” or “processing fee” upfront before they give you the loan. You pay the fee, and the lender disappears with your money.1

IF THEY HAVE SHORT REPAYMENT TERMS….

One reason why payday lenders are so dangerous is because they give you so little time to pay back your loan. You’ll be expected to repay the full principal, with interest and fees, in as little as two weeks.

Can’t pay it back? Well, you’ll have the option to extend the loan for another couple weeks (for a costly fee). And this is where people get trapped. You can end up in the dreaded “cycle of debt,” forever extending your loan and never able to fully pay it back.

There’s a reason payday lenders have gained a bad reputation.

Andrew Fiebart (@AndyFieb), co-owner of the Listen Money Matters (@MoneyMattersMan) podcast and blog, warns that “the APR on payday loans is extremely high, so you’ll pay more each time you extend your loan.”

APR (or annual percentage rate) includes fees and interest, so you can get a full picture of how much a loan will truly cost you. When you compare the average APR of a payday loan (nearly 400%2) with the APR of an average credit card (12%3), you’ll see just how outrageous these predatory fees really are.

IF THEY’RE TRYING TO TAKE YOUR CAR…

Fiebart singled out another dangerous bad credit loan you should steer clear of:

Title loans require you to give your car’s title to the title loan company in exchange for an amount equal to the appraised value of your car. If you can’t pay back the loan, you run the risk of the lender repossessing your car.”

Since the APRs and payment terms of title lenders are similar to those of your bread and butter payday lenders, it’s terrifyingly easy to lose your car.

No matter how sure you might be that you can pay it back, it isn’t worth risking your car over.

WHAT KIND OF CREDIT CHECK ARE THEY PERFORMING?

Not all dangers are major and not all of them are exclusive to bad credit loans.

Before applying for a loan, you should find out if the lender is going to perform a hard or a soft credit check.

As mentioned above, you should expect a legitimate lender to perform a credit check. But a “hard credit check” can negatively affect your credit score.

If you need a loan and you already have bad credit, try to find a lender who will perform a “soft credit check“, which won’t affect your credit score.

We can’t imagine anything less fair than being rejected from a loan you need AND having it further hurt your credit.

IS THERE ANYTHING HIDDEN IN THE CONTRACT?

At the end of the day, the reason why many bad credit loans become dangerous is because lenders aren’t upfront about the risks you’re being asked to take on.

All of the things we’ve mentioned so far are risks that dangerous lenders will try to hide from you.

We touched on some of the major concerns, but it’s important that you read through anything you’re signing very carefully, look at the loan in terms of its APR, and ask as many questions as you need.

A good lender will want to work with you to make sure you’re getting the best loan possible.


B_Graff

 

About the Contributors:

Andrew Fiebert, is the Co-Founder and Chief Nerd at Listen Money Matters, a finance blog and podcast. After working as a data engineer at an investment bank, Andrew realized that there weren’t any good places to learn about personal finance. Often left to his own devices to learn what was needed for finances, Andrew put together Listen Money Matters. Listen Money Matters is a community to help others get their financial situation straight.

Brett Graff, has been seen writing and reporting on money and personal finance in The LA Times, Yahoo! Finance, Cosmopolitan, The New York Times and the Fiscal Policy Institute, to name a few. Brett also provides her insight in the column, The Home Economist, which is nationally syndicated and published in newspapers all over the country. Her book “NOT BUYING IT: Raising Happier, Healthier & More Successful Kids” is now available!


References:

  1. “Advance-Fee Loan Scams” Michigan.gov. Accessed February 22, 2017 from http://www.michigan.gov/ag/0,4534,7-164-17337-252538–,00.html
  2. “Average Credit Card Interest Rates (APR) – 2017” Valuepenguin.com. Accessed February 22, 2017 from https://www.valuepenguin.com/average-credit-card-interest-rates
  3. “What is a Payday Loan?” ConsumerFinance.gov. Accessed February 22, 2017 from https://www.consumerfinance.gov/askcfpb/1567/what-payday-loan.html

Bad Credit Loan Coming Attractions!

coming-attractions-1024x262

Everyone is talking about bad credit loans these days, and Hollywood seems to be taking notice. (Editor’s note: They’re not.) All the newest films are about bad credit lenders! (Editor’s note: They’re really not.)

With so many people wondering what their loan options are, we thought you might enjoy hearing about the hottest upcoming films that deal with bad credit loans, which we may or may not have made up entirely (Editor’s note: We did).

If you have a not-so-hot credit score and you’re worried about getting a loan, these upcoming blockbusters might help you figure out which bad credit loan works best for you.


THE INTEREST RATE DECEIT

Tammy is just an everyday woman who needs a loan for some car repairs. Unfortunately, her credit is quite low. She sees some advertisements for bad credit loans, and figures the safest choice would be to pick the one with the lowest interest rate.

But, spoiler alert, there’s a big twist! The loan she chose had so many fees, it ended up being more expensive than the loans that had higher interest rates. If only Tammy had made sure to compare the loans using their APR, or annual percentage rating—she might have met a better fate. The APR tells you the full cost of a loan, including interest and fees, so it’s the best way to avoid an unpleasant twist in your story.

David Reiss, a law professor and editor of REFinBLOG.com (@REFinBlog), gave us an example of why APR is so important: “It would help a potential borrower compare the cost of credit between one loan with a 5 percent interest rate and one with a 4 percent interest rate that charges a point at origination.”

In other words, a loan that charges a fee when you take it out could actually be just as expensive or more expensive than a loan with higher interest rates and no fees.

FLAMING RUBBER

Jack Steele is a member of the CIA’s ARD (Awesome Racing Division). He stops illegal smuggling rings with muscle cars and incredible driving skills. When a former member of his team goes rogue, he has to chase him from city to city, pulling off incredible driving stunts as he carries out justice on the road.

Or he would have, except he lost his super cool muscle car to a title lender. Jack Steele has a bad credit rating due to some irresponsible purchases he made when he first got the secret agent job. This means that he has a limited choice in lenders.

He knew he would have to give up the title to his car as collateral, but he figured he’d be able to make the payments. Unfortunately, he was only given one month to pay the entire loan—with fees and interest. That was more than he could handle.

His car was repossessed, and now he has to carry out his mission by taking the bus from city to city. It does not work out well.

NIGHT OF THE PAYDAY LENDER

A group of teenagers wants to rent a lake house for the weekend, but they’re not sure they can afford it. They decide to take out loans from a payday lender to pay for their two-week trip. It seems like the perfect vacation at first, but then they notice something scary spreading through the house. It’s the realization that there’s no way they’re going to be able to pay back this loan in time!

One of the teens double-checked the terms of the loan, and they realized they’re going to have to pay it back in full—with interest and fees—before they even head back home. They decide their only hope is to pay a rollover fee and extend the loan. But this turns out to be a terrifying mistake and they’re trapped forever… in a cycle of debt.

AMORTIZE THIS

Lisa has bad credit. John works at a lending agency that offers bad credit loans. Lisa needs a loan, but is worried that John might work for one of those payday lender scams. Their relationship blossoms as he explains that they actually offer installment loans based off her ability to repay, with long, amortized payment terms.

“Amortized” means that each payment Lisa makes will be paying off a portion of the interest and the principal, the original loan amount. That means Lisa will actually be able to pay off her loan in full over a set amount of time, and she and John can live happily ever after.

EXTRA CREDIT

Steve thought he’d be stuck with bad credit forever, but then he went to study ancient credit techniques in the Himalayan Mountains. That proved to be too cold for his liking, so he came back down to ocean level to find some more practical solutions.

For example, he could listen to nationally recognized credit expert Jeanne Kelly (@creditscoop). She gave us some advice for getting your credit score up, saying that you should pay on time—and that, even if you might have been sloppy with making your payments in the past, to start today to focus on all minimum payments to be paid on time.”

She also recommended that people pull their credit report and check for errors. If there is a mistake, you should contact the credit agency. After all, why should you have to suffer for their error?

Steve might also consider a credit building installment loan. This can be one of the better bad credit loan options, since a good lender will give you enough time to make payments you can afford, and even report those payments to a credit agency so you can grow your credit score. By the end of his journey Steve might even have… Extra Credit!


About the Contributors:

Jeanne Kelly, is an author, speaker, and coach who educates people achieve a higher credit score and understand credit reporting. #HealthyCredit is her motto. As the founder of The Kelly Group in 2000 and the author of The 90-Day Credit Challenge, Jeanne Kelly is a nationally recognized authority on credit consulting and credit score improvement.

David Reiss, is a professor at Brooklyn Law School and director of academic programs at the Center for Urban Business Entrepreneurship. He is the editor of REFinBlog.com, which tracks developments in the changing world of residential real estate finance.

6 No Credit Check Loan Red Flags

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Welp. A kid just threw a baseball through your window and ran away before you could get his parents’ information. Now you need a loan to fix it. But what if your credit score isn’t exactly a home run? What are you going to do now?

It’s a fact of modern life: a “good” credit score (a FICO score of 680 or higher) can make little financial emergencies like these much more bearable. Unfortunately, just over half of American consumers have weak or bad credit.1 According to credit expert David Hosterman of Castle and Cooke Mortgage (@CastleandCooke), “Customers with bad credit can have trouble financing a home, renting a home, obtaining credit cards, car loans, student loans, and more.” And it’s not a problem that goes away overnight. Hosterman says rebuilding credit can “sometimes take years to complete.”

So how can people with bad credit get a loan if an urgent need arises? One option is a “no credit check loan.” And if these loans sound too good to be true, it’s because they often are. Many “no credit check” loans are nothing more than financial traps designed to suck away as much of your paycheck as possible. Keep an eye out for these red flags before you end up in an unaffordable situation.

Be suspicious of lenders when…


1. They Don’t Care About Your Income

If a lender doesn’t want to check your credit, make sure that they do check your employment and income. Why? If a lender wants to verify that you’ll be able to afford to repay your loan, it’s a signal that they’re legitimate and not trying to walk you into a debt trap.

If a lender doesn’t check your credit or your income, then it’s likely that they’re trying to sell you a loan you can’t afford. This is a classic predatory practice, because if you can’t repay your loan, you’ll be forced to roll it over (extending the loan for another cycle) and you’ll pay additional fees to do it. Suddenly, you’re sinking further and further in debt, and your predatory lender is making more and more money directly from you.

This unfair practice is a hallmark of payday lending, and it can trap borrowers in unexpected debt for months or even years.

2. Short Payment Terms

Any good lender wants you to have a real shot at actually paying back your loan in full. A payday lender, on the other hand, wants you to be trapped into rolling over your loans so that you can give them money forever. They’ll require you to pay back the entire loan, with interest, after only a few weeks—and sometimes less!

Instead, find a lender that will offer you an installment loan. David Bakke (@YourFinances101), a finance expert at MoneyCrashers.com, says that one of the main benefits of installment loans is that they “usually come with fixed interest rates, meaning that you know what your monthly payment is going to be.” A good “no credit check” lender will be certain that you have a source of income and then work with you to create a repayment plan over a longer term that you can handle.

3. They Talk About Interest Rates Instead of APR

According to David Reiss (@REFinBlog), a law professor and editor of REFinBlog.com, “The annual percentage rate or APR shows the total cost of a loan, including fees and interest. APRs allow potential borrowers to make an ‘apples-to-apples’ comparison between loans. It gives you a full and clear picture of how expensive a loan really is.” In other words, it’s a number that many “no credit check” lenders would prefer you never see.

They’d rather show you a basic interest rate, even though federal law requires APRs be used in most cases. Not only can that hide all sorts of fees, but it forces you to do some pretty complex math if you want to actually know how much you’ll be expected to pay. Friends never make friends do complex math problems, so if a lender isn’t talking in terms of APR, they’re likely not your friend.

4. They Want Your Car Title

Some “no credit check” lenders will accept your car title in return for a loan. The car is serving as collateral, which means it’s being used to guarantee that you’ll pay. This might seem like a reasonable deal at first. After all, you’ll be fine as long as you pay it back, right? Well, that’s a pretty big “if.” Since the lender is holding your car’s title, they’ll be able to seize it if you don’t make your payments. In fact, a recent study from the Consumer Finance Protection Bureau found that 1 in 5 title borrowers will lose their car!2 You never know what financial surprises could happen and it’s too big a risk to gamble on—especially if you need your car to get to work. If you were in a desperate situation before, having to walk or catch the bus to work certainly won’t improve things. These loans are unsafe at any speed.

5. They Don’t Have a Customer Service Line

The best “no credit check” lenders should be willing to work with you to make sure you can pay off your loan, even if something unexpected comes up. That’s why having good customer service is so important. If you know you’re going to have trouble making a loan payment, you should be assured that there’s a number you can call for help. E-mail might feel like a more modern form of communication, but nothing is as efficient as talking to another actual person. There’s less potential for misunderstandings, and you don’t have to worry about whether they’re receiving your concerns. Any company offering loans to people with poor credit is either looking to help them or to take advantage of them (read more in How to Shop for a No Credit Check Loan). If they won’t even give you a way to talk to them, they aren’t worth your time or your trust.

6. They Have Bad Online Reviews

Much like a hotel or a restaurant, you want to be sure your lender has the best online rating possible. After all, you wouldn’t give your money to a burger place that makes people sick, so why should you give your money to a lender that’s trying to make you broke? You’ll get over that burger in a day or two, but a bad loan could make you nauseous for years. When people get ripped off, they don’t tend to be quiet about it. Heed their warnings. Taking just a few minutes to look at reviews could save money and pain.


Sure, there are a lot of red flags when it comes to “no credit check loans,” but that doesn’t mean your situation is hopeless. You may qualify for a “soft credit check” loan from OppLoans. A soft credit check doesn’t affect your credit rating, so there’s no risk when applying!

The next time you need a loan, do yourself a favor and watch out for the red flags that indicate you’re dealing with a predatory lender. Seek out a safe, responsible, soft credit check installment loan. You’ll be able to repair that broken window without damaging your credit.


References:

    1. Detweiler, Gerri. “Most Americans Have Bad Credit, Study Finds.” Credit.Com. January 30, 2015. Accessed on February 1, 2017 at http://blog.credit.com/2015/01/most-consumers-have-subprime-credit-report-says-107535/.
    2. “CFPB Finds One-in-Five Auto Title Loan Borrowers Have Vehicle Seized for Failing to Repay Debt.” ConsumerFinance.gov. May 18, 2016. Accessed on February 1, 2017 at http://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-one-five-auto-title-loan-borrowers-have-vehicle-seized-failing-repay-debt/.

About the Contributors: 

David Bakke is a finance expert who started his own personal finance blog, YourFinances101, in June of 2009 and published his first book on ways to save more and spend less called ““Don’t Be A Mule…” Since then he has been a regular contributor at Money Crashers.

David Hosterman (@CCMortgageLLC) is a credit and financial expert. He began working as a loan officer with Castle & Cooke Mortgage, LLC in 2008 and became a Branch Manager in 2015. David has been featured in CBS Money Watch, Forbes, MSN Money, and elsewhere.

David Reiss is a professor at Brooklyn Law School and director of academic programs at the Center for Urban Business Entrepreneurship. He is the editor of REFinBlog.com, which tracks developments in the changing world of residential real estate finance.

6 Common Credit Myths Debunked!

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Rod Griffin, the Director of Public Education for Experian, sets the record straight about what does—and what definitely does not—affect your credit score.

Ever heard that getting 10,000 followers on Twitter can raise your credit score by 50 points? Or that your income determines your credit score?

There’s a lot of so-called “information” about credit scores, credit reports, and loans that you can find online. And—shocker—a lot of it isn’t true.

We asked expert Rod Griffin (@Rod_Griffin), Director of Public Education for the credit bureau Experian to sit down with us and debunk some of the most common myths because, when it comes to your credit, it pays to separate the fake and the factual.

MYTH #1: If You Pay a Bad Debt, It Will Be Deleted from Your Credit Report.

Rod says: “That’s not true. If you have a collection account and you pay it off, it will be updated on your credit report to show that it’s been paid, but it’s going to be on that credit report for seven years from what we call the “original delinquency date” of the debt.

The original delinquency date is simply the date that the account first became late, and it’s the most important date in the credit report because it determines when negative information is deleted. So if you have an account that becomes late, and you never catch up on it, it will get charged off as a loss, and you get sent to collections. Under federal law, the collection agency must report the original delinquency date, so it comes off at the right time.”

MYTH #2: You Should Only Pay 95% of Your Credit Card Balance Each Month.

Rod says: “The myth here is that you need to keep a balance on your credit card in order to help your credit score—and that’s just not true.

The ideal thing to do is pay your balances in full each month if you can. When you pay a balance in full each month it keeps that credit utilization rate [how much of your credit limit you’re using] at essentially zero, which is a low as you can keep it. And you don’t have to pay interest on your remaining balances, so it saves you money.”

MYTH #3: A Divorce Decree Separates Joint Accounts and Removes You from Responsibility for That Debt.

Rod says: “It does not. A divorce decree does not break the contract with the lender. A divorce decree just says that “I am taking responsibility for paying this debt” and “my ex-spouse is taking responsibility for that debt.” And it’s an agreement between you and the court. It doesn’t change the contract with the lender.

So if your ex doesn’t pay a debt that they’re supposed to pay, but it’s joint account, it can still hurt your credit history. In order to change a contract with a lender when you’re going through a divorce, you must go to the lender, and they must agree to change that contract. They won’t necessarily do that. They’re not bound to change it.

So for example: If you have a mortgage, and it’s joint with the spouse that you’re divorcing, you might have to essentially get a new mortgage to pay for that home to separate your spouse from that account. A lender might not agree to do that if you don’t qualify. This myth can really get people into a lot of trouble. Since it’s an angry bitter time, quite often, one spouse or the other will decide they’re going to hurt the spouse they’re divorcing and run up their credit card bill. Then they find out that they’ve hurt themselves as badly as they’ve hurt the other person.”

MYTH #4: You Can Pay Someone to Remove Accurate Negative Information from Your Credit Report.

Rod says: “You cannot. If someone says that they can remove accurate information if you pay them, they’re actually violating federal law. So be very cautious about some who says, ‘If you pay me, I can fix your credit.'”

MYTH #5: Disputing Information on Your Credit Report Will Hurt Your Credit Scores.

Rod says: “That too is false. And a relatively common myth. If there is something in your credit report that you believe is inaccurate, you should dispute it. It’s free. Go to www.Experian.com/dispute and follow the instructions. If you have a personal copy of your credit report, you can enter your number for that report and it will pop up and you can go through it. If you don’t have a report, you can give us some information and we will provide you with a free report right there on the spot. It’s very easy and free and does not affect scores or credit decision in any way.”

MYTH #6: Employers Get Credit Scores and Use Them to Decide Whether You Get a Job.

Rod says: “Absolutely false. Employers never get credit scores. They get what we call an ’employment insight report’ which is a truncated version of a credit report, but they never get a credit score. That’s a very common myth. The employment insight report doesn’t include account numbers because they don’t need that kind of information. They use the information on that report to verify the information you provide in your app. They use it as an identity verification tool.

They will also use the information on that report, for example, if you are applying for a job that involves handling the company’s money. If you’re going through financial difficulties and you’re going to be handling a company’s money, it might be an indicator that they should look further into your background so that they can understand that you wouldn’t be tempted to commit fraud, for example. The other reason that businesses use credit reports is that they can verify your identity for security purposes. So, important and valid reasons to use a report. But employers never get a credit score.”

If you want to know more about how the information on your credit report affects your credit score, check out Rod’s answers in our blog post, “Let’s Get Creducated!”

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About the Contributor: 

Rod Griffin is Director of Public Education for Experian. He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.

Rod says, “My goal is to help people use a credit report to be a financial tool instead of a mysterious thing that lenders look at and take into a back room and tell you you’re approved or you’re not. I work to help any consumer be better prepared to get the credit they need, at the time they need it, and at rates and terms that are favorable to them.”