The Eight Best Online Loan Calculators

Best Online Loan Calculators

There are a lot of great loan calculators online. We did the research and brought you back our favorites.

Applying for any kind of loan—sadly—means doing a lot of math. You have to do stuff like calculate annual percentage rates (APRs) and figure out how your monthly payment will be affected by the length of your repayment term. With some loans, you even have to factor in taxes and insurance.

Heck, getting answers on your student loan payments might as well require you to go to school to figure it out—which would then mean taking out yet another student loan to pay for it!

(We’re joking about that last one. But only slightly.)

However, just because you have to do some math, doesn’t mean you have to do it all on your own. There are lots of great loan calculators available online that ask for your basic loan info and then do the hard part (read: the math part) for you.

This is why we combed through a ton of online offerings before settling on the best, most usable loan calculators that we could find.

Here’s what we recommend.


1. Personal Loan Calculator – Bankrate.com

Bankrate.com (@Bankrate) is a great website that lets you compare rates on a whole bunch of different loans, credit cards, and other financial products. And to help you do that, they offer a sleek, simple loan calculator that’s a cinch to use. It can be used for any kind of loan, including mortgages and auto loans, but there are lots of auto and mortgage specific calculators out there that offer more specific features.

We recommend using this one for standard personal loans. The pie-chart feature that shows how much you’ll pay in interest versus the rest of your balance is a lovely touch.

2. Auto Loan Calculator – Cars.com

I know. You’re absolutely shocked that a site like Cars.com (@carsdotcom) would offer one of the best auto loan calculators. We know. We’re surprised too. In all seriousness, though, this is a great calculator that includes lots of car-specific data points. For instance, when you’re buying a car, you’re probably going to get hit with sales tax. So this calculator lets you enter that tax rate in, giving you a full picture of how much you’re paying. It even has a feature where you can estimate and factor in the value of your trade-in.

Nobody likes being hit with surprise fees and taxes, so the Cars.com calculator makes sure you get as clear a snapshot as you can before actually applying.

3. Mortgage Loan Calculator – Zillow.com

If you’ve spent any amount of time shopping for a house, apartment, or condo, then you’re probably familiar with Zillow.com (@zillow), one of the leading real estate listing sites. To help prospective homebuyers, they’ve created a mortgage loan calculator that gives you a lot of information—without getting busy or hard to use.

There’s a basic version of the calculator where you can enter cost, down payment, APR, and term-length to get a broad overview of your loan, and then a more advanced version where you can enter in property tax, home insurance, and HOA dues. The calculator is geared around your expected monthly payment, which it breaks down into its various parts, letting you see how much you’re paying each month in principal and interest, taxes, insurance, and HOA fees. The calculator not only provides you a full amortization schedule as well, it even pops that information into a handy-dandy graph!

4. & 5. Debt Snowball/Avalanche Calculators – Undebt.It & Unbury.Me

When you’re making a plan to pay down your existing debt, you’re probably choosing one of two methods. Either you’re focusing on paying off the debt with the lowest balance first, also known as the “Debt Snowball” method, or you’re making your highest-interest debts your top priority, better known as the “Debt Avalanche” method.

No matter which method you choose, you’re going to need a calculator to help you make a plan of attack. Luckily, there are actually two really great calculators out there that will help you with both methods. They’re offered by Undebt.It (@undebt_it) and Unbury.Me (@unburyme). Neither calculator is super fancy because they don’t need to be. They walk you through the debt organization process and give you a clear picture of how long it will take you to become debt free, how much you’ll be paying each month, and how much you’ll pay in interest along the way.

If you want to learn more about the debt snowball and debt avalanche methods, you can check out our blog posts:

6. Federal Student Loan Calculator – StudentLoans.Gov 

If you have federal student loans, then why not use the federal government’s loan calculator to help you repay them? The best part about their calculator is that you can log into the StudentLoans.gov (@FAFSA) website and it can instantly access all the info for your outstanding loans. No more typing all of your info into the fields. It also gives you payment plans, estimates, and projected loan forgiveness based on what type of repayment plan you’ve selected or are eligible for.

To learn more about student loan forgiveness, check out our blog post:

7. Private Student Loan Calculator – StudentLoanHero.com

If you have a mixture of private and public loans, then we recommend checking out the calculators offered by StudentLoanHero.com (@StudentLoanHero), a website created to help people organize, manage, and repay their student debt. They have 20 different calculators, most of which are designed for different aspects of student debt, both private and public, including calculators that will help you with consolidation and refinancing.

To learn more about student loan consolidation, check out our blog post:

8. Payday Loan Calculator – CSGNetwork.com

Before taking out a payday loan, you should know what you’re getting yourself into. Because, while the interest rates for these short-term, no credit check loans might seem reasonable, their APRs show you just how expensive they are compared to other types of loans. That’s why, when you’re considering taking out a payday loan, you should always check the APR first. But don’t worry, all you need is the principal amount you’re borrowing, the length of your repayment term, and the interest charge, which might be referred to as a “loan fee”. (Unlike other loans, payday loans are designed to be paid back in a single, lump-sum payment, which means that interest is often charged as a flat fee, rather than an ongoing rate.)

Once you have that information, you can visit this payday loan APR calculator provided by CSGNetwork.com. The calculator might not look like much, but it’ll get your APR calculated lickety-split. And once you see how expensive your loan is, you might consider looking for something a little more affordable. Might we suggest an installment loan from OppLoans?

Do you have an online loan calculator that you like to use? Let us know! You can email us, or you can shoot us at tweet at @Opploans.

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Is Guaranteed Approval A Real Thing?

Guaranteed Approval For No Credit Check Loans

In short: no. That’s why promises of “guaranteed approval” are a huge danger sign.

If you have bad credit, then your lending options are going to be tight. A credit score under 630 means that most traditional lenders are not going to work with you. Furthermore, applying for a loan from a bank or credit union could end up knocking your score even lower!

That’s why folks with bad credit often turn to no credit check lenders. These are lenders who, as you might have guessed, will not check your credit score before issuing you a loan. For someone who has bad credit, a no credit check loan sounds like just the ticket!

But if you see a lender that is advertising “guaranteed approval” for their no credit check loans, you should be careful; because “guaranteed approval” is not a real thing. And promises like this are a hallmark of predatory lenders that want to trap you in an unending cycle of debt.

Let’s break this down, shall we?


What is guaranteed approval?

Let’s not beat around the bush. Guaranteed approval is a myth.

Theoretically, guaranteed approval means that, no matter how bad your financial circumstances are, this company will lend you money if you apply for it.

The problem here is that just isn’t so. A lender that gave out loans to anyone who applied for one would not be in business very long. All lenders have some kind of minimum standards that potential customers have to meet.

Of course, the standard for some lenders is very low. Oftentimes, all you need to apply for a loan from them is a functioning bank account. This is usually true for payday lenders, who use a postdated check to “secure” your loan. So long as you have an account and a pulse, they’ll gladly lend you money.

But if you’re a member of one of the nine million US households that don’t have a bank account (known as “the unbanked”), then you still wouldn’t be able to get a loan from these folks.

Easy approval? Sure. Guaranteed approval? Nope!

Promising “guaranteed approval” is a danger sign.

The reason that predatory no credit check lenders advertise “guaranteed approval” is simple. It gets your attention, and it gets you to click on their ad or walk into their storefront.

Advertising “guaranteed approval” is no different than those click bait internet articles that end with “and you won’t believe what happened next.” It’s a tactic to get your attention and to get you in the door.

Lenders like these know that their potential customers have bad credit scores, low levels of financial literacy, and are usually in desperate need of some fast cash. They also know that once the person has clicked on their site or entered their store, they’re pretty likely to walk out with a loan.

So these lenders make big flashy promises (often times with an asterisk and some very fine print attached) that they have no intention of keeping. And while it’s true that these sorts of lenders will probably approve your loan application, it’s also a sign that they do not care about your ability to pay the loan back.

And a lender that doesn’t care about you paying your loan back is likely one whose products will trap you in a dangerous cycle of debt.

Avoiding the debt trap: Why “ability to repay” is so important.

Most of the time, a promise of “guaranteed approval” is going to come from a payday lender. These are lenders that offer short-term, no credit check loans, usually requiring nothing more than a postdated check made out to them for the amount loaned plus interest.

But isn’t that the great thing about these payday lenders? It’s so easy to get a loan from them! They wouldn’t want to give you a loan that you couldn’t afford to pay back…

Except that’s exactly what they do.

See, predatory payday lenders depend on your inability to afford the loan in the first place. Instead, they want you to either roll your loan over or pay it back and then immediately take out a new one–also known as “reborrowing.”

Either way, people end up taking out loan after loan, each time paying more and more money in interest, and never getting any closer to paying down the principal. It’s a vicious cycle of debt, with no end in sight.

And it’s also the backbone of the payday lending industry. According to a study from the Consumer Financial Protection Bureau, 75 percent of payday loan fees come from borrowers who take 10 or more payday loans in a single 12-month period.

Predatory lenders like these prey on people with bad credit scores who don’t have many other options. It’s not that they ignore a person’s ability to repay, it’s that people who flat out can’t afford these loans make for their best, most profitable customers.

Thes are the kinds of lenders that like to advertise with promises of “guaranteed approval.”

Skip no credit check loans. Try a soft credit check loan instead.

The fact of the matter is this: when you are applying for a no credit check loan, you are running a very high risk of encountering a predatory lender.

The reason for that is simple. People with bad credit who can’t afford a regular loan (or who don’t have the savings built up to deal with a financial emergency) are predatory lenders’ prime targets.

They lack other credit options beyond bad credit loans. They likely have low incomes, as well as a low level of financial literacy. They are exactly the kinds of people who can easily get trapped into a dangerous (but very profitable) cycle of debt.

But there’s another, better option out there. While a no credit check lender probably doesn’t care about your ability to repay, you can be certain that a “soft” credit check lender does.

What’s a soft credit check lender? Well, they’re a lender who does look at your credit history to see whether or not you can afford your loan.

Here’s the best part: a soft credit check won’t affect your credit. Soft checks, like the kind you make when you check your credit score, don’t show up on your credit report. Read more about soft credit checks in our post 5 Must-Know’s Before Applying for a “No Credit Check” Loan.

Sure, caring about your ability to repay does mean that a soft credit check lender is a little more likely to reject your application, but that’s the beauty of a soft credit check. You can apply for a loan without any fear that a rejected application will needlessly harm your score.

We should know. OppLoans performs a soft credit check on every application we receive.

So what are you waiting for?

Learn more about OppLoans, or apply for a loan today. And if you’ve had a bad experience with a no credit check lender, we want to hear from you! You can shoot us an email by clicking here or you can find us on Twitter at @OppLoans.

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Know Money, Win Money! Episode Two: Payday Loans

opploans - know money, win money

Hello, money fans! It’s time for the newest episode of Know Money, Win Money!

We quizzed people about payday loans and gave them money when they got it right. Hopefully they didn’t have to spend that money paying off a payday loan, but if they did, then fingers crossed that was the last bit they needed to pay it off!

You can watch the episode below:

The first question we asked was about the average payment term for a payday loan. That is, how long you have to pay back the full loan amount with all fees and interest included. The answer? Only two weeks. Which means a lot of people are forced to…

Rollover their loan. We asked people what that means, and some of them knew! In case you don’t know, it means that you pay to extend the loan, which can be the start of a vicious cycle of debt. You can learn more about Payday Loan Rollover (an its many, many dangers) here in our blog.

Next we told people that payday loans have an average of 400% APR and asked what APR stands for. It’s Annual Percentage Rate, and it’s a number that describes the full cost of a loan including all interest and fees. That lets you compare different loans in an “apples to apples” fashion to figure out which one makes the most sense for your needs.

Finally, we asked how installment loans are different from payday loans. As the name suggests, installment loans allow you to pay off the loan over time, in installments, so you can manage your finances without falling behind.

All right, now that you know about payday loans, don’t go get one! But do get money when you run into us the next time we’re on the street playing Know Money, Win Money!

Be sure to also check out our previous Know Money, Win Money blog and episode about credit.

What are some financial topics that you’d like us to cover in future episodes of Know Money, Win Money? We want to hear from you! You can email us by clicking here or you can find us on Twitter at @OppLoans.

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Introducing How to Money! Episode One: APR

how to money video

Hey readers, we’ve got some exciting news! We at the OppLoans Financial Sense blog are launching an ongoing video series called “How to Money.” Every episode we’ll tackle a different financial topic. Some of them will be terms you hear every day, while some of them will be a bit more obscure.

Each week, we’ll boil our topic down to its basics and include some helpful tips for how you use your newfound knowledge to live a healthier financial lifestyle. If you’re on the go, these videos will be the perfect way to brush up on your financial know-how.

We’ll be releasing one video a week until, well, until we either run out of financial topics or the sun swells into a gas giant and consumes the planet—whichever comes first.

(Basically, we’re in it for long haul.)

Enjoy!

What is APR?

If you’ve ever seen a car commercial or gotten a credit card offer in the mail, then you’ve probably heard of APR. But what is it?

Well, it’s an acronym, and it stands for Annual Percentage Rate. Basically, it tells you how much a given loan or credit card is going to cost you over the course of one year.

APR is a better measure of a loan’s true cost than the simple interest rate because it includes additional fees and charges—something the simple interest rate conveniently leaves out. (You can read more about that in our What You Should Know About Interest Rates blog post.)

Here’s how APR works.

Using the APR, you can figure out how much money you’ll be paying in order to borrow money.

Let’s say you take out a multi-year installment loan for $1,000 with an APR of 15 percent. After one year, you would owe interest equal to 15 percent of the total amount borrowed. In this case, that would mean 15 percent of $1,000, or $150.

So with an APR of 15 percent, you would owe $150 in interest on a $1,000 installment loan after one year.

Here’s where it gets tricky.

Yeah, this is the section where APR gets slightly more complicated. Since APR is calculated off your total remaining balance, the dollar amount that accrues over time decreases, even as the rate stays the same.

Wait, what?

Think about it like this: Using the previous example, your APR stays the same at 15 percent, but as you pay the loan down you’re getting charged 15 percent of an ever smaller and smaller balance. If you paid off half of your $1,000 loan, your 15 percent APR would be applying towards a balance of $500, and 15 percent of $500 is only $75.

So what does this mean?

This is actually good for you. As you pay your loan off, the amount of interest that’s accruing goes down too, so you end paying less in interest overall. Less money paid in interest is good! Woohoo!

Using APR for short-term loans…

One of the reasons that APR is such a useful tool is that it lets you compare costs between different loans. And when it comes to short-term loans like payday loans—which oftentimes only last two weeks—APR can show you just how insanely expensive these products are compared to other loans.

Let’s look at the APR for a 2-week payday loan. Let’s say that the loan is for $300 with an interest rate of 20 percent. 20 percent doesn’t sound that bad right?

But, remember, that 20 percent interest rate only applies for the loan’s two week term. If you were to roll the loan over, you’d be charged an additional 20 percent, for a total interest rate of 40 percent over four weeks.

In order to figure out the APR, you have to figure out how much that interest rate would be over an entire year!

There are 52 weeks in a year, and 52 divided by two is 26. So if you multiply 20 by 26, you’d get the APR for your two-week payday loan

It’s 520 percent.

Yowza! This is why payday loans are so much more expensive than your standard installment loan. The interest rates look comparable, but APR tells you the real story.

Is there is a topic that you would like for us to cover in a future episode of How To Money? Let us know! You can email us by clicking here or you can find us on Twitter at @OppLoans.

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.

What’s the Difference Between a Payday Loan and an Installment Loan?

male lion sitting in the safari

If you’re looking to borrow, you may already know about payday loans—they’re fast, dangerous, and designed to take advantage of those in need. (Think of them as the jackal of the lending animal kingdom.) Is there a better option? Something just as fast, but… you know, not evil?
You bet there is.
When it comes to lending, consider the personal installment loan the noble lion, king of the lending jungle.

Payday Loans: Scavenging on your finances.

“Payday loans… can destroy a borrower’s credit and wipe out their bank account.”

Payday loans are short-term, unsecured loans that target the financially vulnerable—the low income, the elderly, and those without limited financial education. Payday lenders won’t perform a credit check and, depending on the restrictions in your state, they may not even check your income first.

Fast money without a credit check? What could be wrong?

Well, a lot. Payday loans charge unfair fees and massive interest rates, meaning they have extraordinarily high annual percentage rates (APRs)—the measurement that allows you to see the full cost of a loan.

Certified financial educator Maggie Germano (@MaggieGermano) says, “Payday loans usually turn out very negatively for the borrower. Interest rates and fees are sky-high and many people are unable to pay them back in time. Every time you miss your payment due date, the amount owed increases significantly. This makes it impossible for people living paycheck to paycheck to pay them off. This can destroy a borrower’s credit and wipe out their bank account.”

It may be tempting to try out the fast, risky option with the short payment terms, but don’t forget: it’s a trap. Read more about payday loans in our eBook How to Protect Yourself from Payday Loans and Predatory Lenders.

Installment Loans: The lion king of lending 

“A good installment [loan]… can actually build up your credit and [help you] qualify for a better loan next time.”

When it comes to payment terms, installment loans are the exact opposite of payday loans. Instead of having to make a massive payment in a short amount of time, installment loans offer you the chance to make regular, smaller payments over a much longer period.

Most installment loans will offer you a MUCH lower APR on your loan than a dangerous payday loan and also—unlike many payday loans—they won’t charge a sneaky prepayment penalty.

What’s a prepayment penalty? Law professor David Reiss (@REFinBlog) sums it up well: “Prepayment penalties come into play if the borrower repays all or part of a loan before the payment schedule that the borrower and lender had agreed upon when the loan was first made. In theory, they compensate the lender for the costs of making the loan in the first place and any decrease in interest payments that the lender would get as a result of early repayment. In practice, prepayment penalties can be a new profit center for lenders if the fees are set higher than the amounts actually lost by prepayment.”

A good installment lender will also report your payments to credit bureaus, so you can actually build up your credit and qualify for a better loan next time.

So which loan is right for you? 

If you know with 110% certainty that you’ll be able to pay off your loan, with all of the interest and fees, as soon as it is due, then a payday loan may be a workable option. But that’s not usually what happens. In fact, according to the Consumer Financial Protection Bureau, four out of five payday loan borrowers find themselves forced to rollover (extending the term of their loan at the cost of another round of fees and interest)1 and the average payday borrowers are in debt to their lender a stunning 200 days of the year.2 So remember, with a payday loan, the odds are never in your favor.

Installment loans are a safer option, especially if you find a lender who is willing to work out terms that fit for you. It’s also important that they have good customer service representatives so you can reach someone in advance if you’re ever worried you might miss a payment. Finally, make sure that there’s no prepayment fee and they report your payments to credit bureaus so you can get an even better loan next time.

The world of lending can certainly feel like a jungle. So always go with a trusted, reliable leader—rather than a dangerous predator running down easy prey.

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

References
1 “CFPB Finds Four Out Of Five Payday Loans Are Rolled Over Or Renewed.” ConsumerFinance.gov March 25, 2014 https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-four-out-of-five-payday-loans-are-rolled-over-or-renewed/. Accessed 30 March 2017.

2 Morran, Chris. “The Average Payday loan Borrower Spends More Than Half The Year In Debt To Lender.” Consumerist. April 26, 2013. https://consumerist.com/2013/04/26/the-average-payday-loan-borrower-spends-more-than-half-the-year-in-debt-to-lender/. Accessed 23 March 2017.


Contributors

Maggie Germanois 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.

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.

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.

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


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).

credit score range

“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