5 Tips for Borrowing Money When You Have Bad Credit

Bad credit borrowers have more options than you might think—you just have to make sure you find the right bad credit loan for you.

bad credit loans can help you out when you’re in a financial bind and need money now. Unlike personal loans from traditional lenders that require stellar credit history, the right bad credit loan can get you the money you need when you need it—even if your credit history is … less than stellar.

Notice that we said “the right” bad credit loan. That’s because certain bad credit loans—also known as no credit check loans—can come with significant downsides and can possibly even trap into a dangerous cycle of debt, taking your financial situation from bad to worse.

Most often, these sorts of loans fall into the category of short-term loans like payday loans, cash advances, and title loans. More on that in a bit. If you have bad credit and you need to borrow money, here are five tips to make help you make the right decision.


Watch out for payday loans.

Let’s get down to brass tacks: Short-term no credit check loans like payday loans are a bad credit borrowing option that you should do your best to avoid. These loans come with extraordinarily high interest rates and large payments that can be difficult for many borrowers to repay.

Payday loans are small-dollar products with average repayment terms around two weeks. The idea behind them is that you take one out to cover a financial shortfall and then you pay the loan back on your next payday, getting yourself out of debt and back to normal fairly quickly.

But the reality of payday loans looks quite different. For one thing, their interest rates are out of this world: According to the Consumer Financial Protection Bureau, payday loans have an average annual percentage rate of almost 400 percent!

Beyond those interest rates, its payday loans’  lump sum repayment terms that can really cause borrowers trouble. Simply put: When borrowers have to pay a loan back in one fell sweep instead of gradually over time, a vast majority of them struggle to afford it.

In a payday lending study conducted by the Pew Charitable Trusts, over 80 percent of borrowers didn’t have enough money in their budgets to cover their loan payments. This is how borrowers end up rolling over or reborrowing their loans, racking up interest without getting any closer to being debt free.

If you need a bad credit loan to cover unforeseen expenses, do everything in your power to avoid making that loan a payday loan.

Look for soft credit check loans.

The terms “no credit check loan” and “bad credit loan” might seem like they’re interchangeable, but they’re not. Sure, there’s a lot of overlap between the two, but the differences between them are important.

No credit check lenders don’t perform any kind of credit check when a person applies for a loan. While a hard credit check risks lowering your score, a soft credit check won’t affect your score at all, and it gives the lender a snapshot of whether or not you can actually afford the loan you’re applying for.

Many bad credit lenders, on the other hand, do perform a soft credit check on their applicants.  In addition, some others will take steps like verifying your income, all to help determine whether or not you can afford the loan you’re trying to borrow.

Here’s why that matters: Lenders that performs these kinds of checks actually care whether or not you can repay, which means these loans are less likely to drive you into an ongoing cycle of debt. When you can pay your loan off the first time—instead of rolling it over or reborrowing—that’s a good thing.

To the best of your ability, try to choose a lender that performs a soft credit check. You won’t regret it.

Read their reviews.

If you were buying a new microwave on Amazon, would you do so without first reading the customer reviews to see what other people thought? No, you probably wouldn’t!

The same is true when looking at a potential lender. Check the company’s reviews on Google and on sites like LendingTree to see what kind of experiences other customers have had.

And don’t stop there. Check out the company’s social media pages to see what kind of comments and complaints people are registering, and also visit their BBB page look for their overall grade. And if they don’t have a BBB page, that right there is a sign to look elsewhere!

When shopping around for a bad credit loan, don’t just take the company’s word for it. See what other people have to say. While you should make sure you take the good comments along with the bad, those reviews will give a better picture of what this lender is really like.

Ask friends and family.

Sure, this might be a little uncomfortable, but borrowing money from a friend or family member is likely to be a much better option than even the best bad credit loan you can find.

For one, friends and family are much less likely to charge you interest. And even if they do, the rate they charge is going to be much less than the rate for a bad credit loan.

But you want to make sure you aren’t taking advantage of their generosity either. The two of you should come up with a plan at the outset for how the loan is going to be repaid, and you should treat the obligation the way you’d treat a regular loan.

In fact, one of the best things you can do is create an actual loan agreement between you and the person lending you money. Don’t know what that would look like? No worries. We created a free personal loan agreement template that folks can use for just such an occasion.

Asking friends and family for money can be a tricky business. And it’s one you shouldn’t go into without a plan. For more, check out these five tips we recently offered to help people ask for financial assistance.

Consider an installment loan.

Unlike a short-term payday loan or cash advance, bad credit installment loans are structured like a traditional loan. They are paid off over time through a series of regularly scheduled payments. And the right installment loan will have payments that fit neatly into your monthly budget.

In addition to generally charging lower interest rates than payday lenders, installment loans charge that interest as an ongoing rate instead of as a flat fee. This means that paying off your installment loan ahead of schedule will save you money. Just make sure there are no prepayment penalties!

Lastly, some companies that offer installment loans (including OppLoans) report your payments to the credit bureaus. This means that paying your loan off on-time can help you build a better credit history. In the long run, a better credit score will score even lower interest rates!

When you need money in a hurry, it’s easy to settle for the first online loan you see. Take the time to do your research and consider all the factors mentioned in this article. Finding the right bad credit loan isn’t hard. You just need to make sure you actually look for it.

Prepare for next time.

The best way to address an unforeseen expense or financial shortfall is to already have the money in your savings to cover it. For people who need a bad credit loan, this advice isn’t helpful, but that doesn’t mean they can’t start planning ahead for next time.

If you want to make bad credit loans a thing of the past, you should start building an emergency fund. Unlike retirement savings, an emergency fund should be easily accessible; and unlike a vacation fund, this is money that you shouldn’t touch until an actual emergency arises.

Eventually, your emergency fund should be large enough to cover many months of living expenses in case you or a partner loses their job. But you can start small. Saving up $1,000 in emergency savings will put you in a better position to handle future surprises.

To learn more about saving money and improving your financial situation long-term, check out these other posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.