5 Tips for Finding the Right Bad Credit Loan

The smarter you are when looking for a bad credit loan, the better positioned you’ll be to find the loan that works best for you.

Shopping for a personal loan isn’t easy, even when you have good credit. Add bad credit to the mix, however, and the difficulty level ratchets up pretty severely. While there are some bad credit loans and no credit check loans that make for good short-term financial solutions, there are many others that could easily trap you in a recurring cycle of debt.

In order to find the right bad credit loan for your situation, you need to know what to look for. You need to know how to look at interest charges versus APRs and how to compare payment terms versus your monthly budget. That’s why we’ve put together this handy bad credit loan guide to help ensure that you’re asking the right questions in order to find the right loan.

1. Ask friends and family first.

If you haven’t stopped to consider this option, then you should—well—stop and consider it! While borrowing money from a friend or family member can be deeply awkward, it sure beats borrowing money from a bad credit lender.

The key to borrowing money in a situation like this is communication. You need to sit down with the person you’re requesting money from and make everything crystal clear. Why do you need this money? How much do you need? What other options have you considered? What kind of repayment plan makes sense?

And while it’s often the case that friends and family members don’t charge each other interest, you should be prepared for this to be part of the deal. But even if they do charge you interest, the rates are probably going to be much lower than the average 400 percent APRs that you see from a typical payday loan or cash advance.

Make sure that both you and your lender understand the terms of your agreement before they hand over the money. In fact, you would do well to get the agreement in writing. If that sounds like a big hassle, you should check out this personal loan agreement template that we created to help people in situations exactly like this one.

2. Shop around.

When people are borrowing bad credit loans, it’s often because they have been blindsided by an emergency expense or another financial shortfall. When your car breaks down, you just want to get it fixed, pronto. The last thing on your mind is taking the time to shop around for the perfect deal. You need money, and you need it now.

But here’s the thing: You should take that extra time to shop around for the best bad credit loan you can find. Loan offers can differ depending on what state you live in, so do some quick research to figure out what kind of interest rates and payment terms are possible for you—and then compare that to the offers you’re actually seeing.

The more loans you compare—including online loans and loans from storefront lenders—the more likely you are to find the best possible loan for you. On the flip side, settling on the very first offer you see is a great way to end up with a loan that’s dragging down your financial picture instead of helping to prop it up. An extra hour or so is rarely going to matter in the grand scheme of things, so take your time and see what’s really available.

Even better, do your research now so that you can act quickly when an emergency expense arises later. Depending on the nature of the situation, you might find yourself under a great deal of pressure to act quickly. If you already have a bad credit loan on file that you know works best for you, it will save you time and it will save you from a financial headache down the road.

3. Do they perform soft credit checks?

Unlike regular personal loans, many bad credit loans don’t perform a hard credit check when you apply. That’s why they’re often referred to as “no credit check loans.” But there’s a difference between checking your credit score and checking your ability to repay, and it could also mean the difference between a loan that helps your finances and one that hurts them.

Bad credit lenders that check your ability to repay will often run some kind soft inquiry on your credit history and/or use a process to verify your income. They take these steps to ensure that you can actually afford the loan that you’re applying for. In many ways, it’s very similar to the process that traditional lenders use with their customers.

True no credit check lenders, on the other hand, do not take any steps to verify your income or look into your credit history. And because they do not do anything to check whether or not you can afford the loan you’re attempting to borrow, the odds are much higher that you’ll end up buried under a pile of high-interest debt.

Many no credit check lenders offer short-term bad credit loans like payday loans, cash advances, and title loans, while most soft credit check lenders offer longer-term bad credit installment loans. Keep this in mind when you’re shopping around and you’ll be well on your way to finding the right bad credit loan for you.

4. Consider payment size.

When people think of payday loans, they usually think about the fact that they have very short repayment terms. Whereas traditional personal loans usually have terms measured in years, payday loan terms are measured in a matter of weeks. In fact, the average payday loan has a repayment term of only 14 days.

Short terms might seem great, as they mean you’ll be getting out debt faster, but that’s not necessarily the case: When considering a loan’s repayment term, you should also be considering the size of its payments. Many short-term no credit check loans have lump sum repayment structures, which means that you pay the loan off all at once.

Lump sum terms can actually make these loans more difficult to pay. Think about it: If you borrowed a $300 two-week payday loan with a 15 percent interest charge, that would give you only 14 days before you had to make a single payment of $345. Is that kind of payment really something you can afford, or would it force you to take out another payday loan to cover your other bills?

Installment loans, on the other hand, come with smaller, regularly scheduled payments that let you pay the loan off gradually. Do the math and calculate how much money you can afford on each payment: Even if a short-term loan seems cheaper than a longer-term installment loan, a lump sum payment that’s too big for your budget means it might not be.

5. Read their reviews.

If your opinion on a company is based solely on their advertisements, then you’re doing it wrong. Ads are where a company puts its best face forward. Customer reviews, on the other hand, give you an idea of what working with them is really like. Before borrowing money from a company, see what their actual customers have to say.

Visit sites like LendingTree and Google to see what kind of customer reviews the business has received. You can also check out their Facebook page to see what kinds of comments are being left and how they’re being resolved. See if the company has a BBB page; if they do, what kind of grade do they have? When customers complain, are their claims being handled?

Borrow now, plan for later. 

When you’re borrowing money, there is no perfect way to protect yourself from risk. You could do everything right and still end up defaulting on your loan—possibly for reasons that were entirely beyond your control. But following these five tips will help you make the best decision you can. From there, the rest is up to you.

And in the future, the best way to deal with an unexpected bill or financial shortfall is to be prepared. That means creating a budget, building your savings, and improving your credit score. To learn more about how you can make your finances battle-ready, check out these related posts and articles from OppLoans:

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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.