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

8-women-1024x262

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 lender if you need a 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.


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

grocer2-1024x262

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.

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

6-myths-1024x264

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.


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

mardi-gras-1024x262

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!


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!

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

What is the Payday Loan Debt Cycle?

Payday loans. You know they’re bad. And if you don’t, we have some information for you: payday loans are bad. Like, dangerous, disastrous, how-are-these-even-legal bad.
From high-interest rates, to short terms, and deceptive practices, there are many reasons why payday loans are best avoided.
But what exactly makes these predatory loans the worst of the worst? A little thing called the payday debt cycle.

What are Payday Loans?

According to Michelle Hutchison (@MichHutchison), a money expert at finder.com (@findercomau), “A payday loan is a short-term, alternative form of credit that can be accessed quickly, even by those with bad credit or no or low incomes. Given the higher risk these loans have for the lender from people who typically have poor credit, and that the loans are unsecured, they generally have higher fees and interest rates than you’ll find for other loan types like personal loans and credit cards.”

And it’s not just the interest and fees you have to watch out for, as Hutchison points out: “They are designed to help people out in a pinch—or between paydays—so the repayment terms are often shorter, ranging from two weeks to a month and occasionally extended to six months.”

Why do people use Payday Loans? 

People tend to seek payday loans when their credit scores are too low to qualify for a traditional loan from a bank or credit union. Additionally, applying for many types of loans can even further damage your credit score. As John Ganotis, founder of Credit Card Insider (@CardInsider) explains: “A credit check from a lender results in something called a hard inquiry. A hard inquiry is a normal part of the lending process and will remain on your credit reports for two years.”

Because payday lenders do not perform a credit check, many potential borrowers with bad credit in need of a loan see payday lenders as their only option to avoid a credit check that could further harm their credit. A better option might be to seek out a lender who performs a “soft credit check,” which will not affect your credit score. But we aren’t talking about what happens with the better option. We’re talking about payday loans.

How do borrowers get trapped by Payday Loans? 

OK, so let’s say you’ve taken out a payday loan (maybe you didn’t know how dangerous they are, or didn’t think you had other options). The interest rate is astronomically high (350 percent) and the terms are really, really short (two weeks). So what happens in the likely event that you aren’t able to pay the money you borrowed (plus all that interest) in time?

You’ll be forced to pay an expensive “rollover” fee to extend the loan. That’s a cost you probably can’t afford, and that’s before you even start to calculate all of the additional interest that will build up from the extension. It’s not hard to see how you might have to roll over the loan again. And again. All while the debt builds up and your credit score goes down. This is it. The dreaded Payday Loan Debt Cycle.

You keep paying. The interest keeps mounting. And all of a sudden, that “two-week loan” is lasting months and months.

As financial writer Jen Smith (@savingwithspunk) told us, “The debt cycle looks different in every family. Sometimes it’s obvious to everyone that debt has been abused but in most cases, debt is gradually racked up and ignored until it builds up to the point that people feel like foreclosure, bankruptcy, or worse are their only options.”

Can you escape the Payday Loan debt cycle? 

According to Jen Smith, “Education is key to escaping the debt cycle. It’s imperative we teach kids and teens about money at appropriate comprehension levels. Many will argue that kids should learn personal finance at home or they won’t listen. Those reasons aren’t good enough for us to leave financial literacy out of schools. Ideally, every grade would have a curriculum with age-appropriate money topics. And more financial literacy content on the internet, where adults spend most of their time, that’s relevant and relatable to people with low incomes is needed to help adults.”

For escaping your own personal debt cycle, you shouldn’t be afraid to ask for help if you know someone in your life who might be able to provide it. Beware of “payday relief” companies, many of which are scams and will just make your situation even worse (read more in our white paper The OppLoans Guide to Safe Personal Loans). One of your better options might be trying to call the loan company directly and see if you can settle for a lesser amount.

You might also consider taking out a personal installment loan with better terms than your payday loan. If your new lender reports on time payments to the credit bureaus, you could actually improve your credit while escaping the payday loan debt cycle.

Bottom line:

It’s not always easy to get out of debt. But budgeting, paying down credit cards, installment loans, and avoiding predatory payday and title loans can help you do it.

Paying off debt and improving your credit will make better options available to you the next time you need money.


Contributors

John Ganotis is the founder of CreditCardInsider.com John comes from a diverse background of software development, web publishing, and personal finance. He knows firsthand what it’s like to accumulate credit card debt, pay it off completely, and then start using credit to his advantage. His passion for technology and attention to detail have made Credit Card Insider one of the premier credit resources on the Internet, and he is eager to help others tackle debt and use credit as a powerful tool rather than fear it.

Michelle Hutchison is finder.com‘s resident Money Expert. Michelle has over seven years’ experience in the financial services and online industries and is a regular commentator on money-related issues. After completing a Bachelor of Arts degree from Australia’s Macquarie University, majoring in Media, Michelle began her career as a journalist in regional radio and TV newsrooms, before working in other media outlets in positions ranging from reporter to editor.

Jen Smith is a personal finance and debt payoff expert. She has been featured on Student Loan Hero, The Penny Hoarder, and AOL Finance. Her website is sSavingWithSpunk.com

The ABCs of Bad Credit Loans

five-questions-1024x262

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 loan with bad credit 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.

March Money Madness: Make Sure Your No Credit Loan Is Nothing but Net

fun-tax-facts-1024x262

It’s March Madness time, but the real challenge is trying to find a loan when your credit score is having a bad season.
There are a lot of “no credit check” loan options out there, but far too many of them are like taking a shot from half-court: a risky idea with little chance of success.
But there is good news…

Just because your score is down right now doesn’t mean you can’t turn it around over time. But for now, you’re on defense, trying to prevent the other team (let’s call ’em the Loan Sharks) from scoring on you. With our coaching, you’ll be sure to get a no credit check loan that’s nothing but net!

Come up with your gameplan ahead of time!

A good basketball team knows game-planning for their opponent can be the difference between an exhilarating victory and a humiliating defeat. But it can be tough to come up with a plan during an emergency, so you should always have one ahead of time.

Ian Atkins, an analyst and writer for Fit Small Business (@FitSmallBiz), suggests that potential borrowers “shop online for loans that are designed for less than perfect credit but that offer reasonable repayment terms.”

You can do your research to figure out which “no credit check” lenders have reasonable terms you can actually handle. The last thing you want when you end up in a financial emergency is to be stuck with a payday lender.

If payday lenders were a basketball player, they would be the guy who does whatever it takes to steal the ball, even if it means playing dirty. (cough Grayson Allen cough.) Occasionally they even get shut down by the refs.

Atkins also recommends looking into what government assistance you might qualify for: “The thing about recurring household expenses is that they won’t go away. Many people considering a payday or title loan will be in a state, county, or city that offers temporary assistance programs they might benefit from. Whether it’s rental assistance, help with utility bills, or nutritional assistance, you may need to find a non-borrowing solution to your budget for a while.”

Don’t let your loan go into overtime! 

Those payday lenders we mentioned we mentioned earlier? One of the worst things about them is the short payment terms they offer. Many will expect you to pay back the full loan, with interest and fees, in only two weeks.

Imagine getting to the final round of March Madness and being told the game is only going to last ten minutes. That would be madness, no matter the month!

What happens if you can’t pay your loan back in time? Well, you’ll be forced to pay a “rollover” fee to extend your loan. It’s like if you were losing a game and you had to pay for more time using whatever points you already had. Sure, you would get extra time to win the game, but you’d have to score even more points to do so!

Rolling over a payday loan might give you an extra two weeks to pay off your loan, but that added time comes at much too high a cost.

Make sure you’ve got a team to back you up!

You’ve made it all the way to the final game. The other team enters the arena. They’ve got their five players, ready to go, and a bench full of people set to take over as soon as they’re needed.

You look around to see… that you’re all alone.

That’s not going to work at all! Unless your idea of a good game is 48 straight minutes of getting dunked on.

If you don’t have a strong team on your side, you’re doomed to fail. That’s why you don’t want a lender who sees themselves as your opponent.

Instead, find a lender who’s willing to work with you to create a payment plan you’ll be able to pay off in a reasonable timeframe while still having money left for the essentials, like food, rent, and a cable package that allows you to watch the NCAA finals. (Okay, so that last one isn’t actually a necessity.)

In addition to working with you, a good lender will have customer service professionals available to help you whenever you need it—whether you’re worried you might miss a payment or you need to ask about a change in terms.

You deserve to work with a lender who wants to be on your team and see you succeed.

Don’t give up what’s essential!

So the coach tells you he has a brand new strategy to win. Step one: you’ve got to hand over the ball to the other team.

Wait, what?

You don’t have to hear step two to realize this is not a great plan.

That’s why you should avoid title loans, which make you put up your car as collateral. In these loan arrangements, when you fail to pay, you’ll be forced to give up your car. If you like your ride, then a title loan is a predatory loan you need to avoid.

Listen to the fans!

A great team should have frighteningly committed fans. If people are painting their faces and wearing funny hats, there must be a good reason for it.

Likewise, if you showed up to a basketball game and the stadium was empty, it would make you wonder why the home team isn’t earning any fans.

That’s why it’s important to check online lender reviews. When you find a lender that gets people to wear giant foam fingers and paint letters on their chest (figuratively) then you know you have someone you can work with.

You’ll still need to be very careful to find out all the terms and be sure you’re getting a fair loan—but if everyone else has had a good experience, odds are you might too.


Contributor

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.