The Benefits (and Drawbacks) to No Credit Check Installment Loans

No credit check installment loans are far from perfect, but they have a leg up on short-term payday loans. Here’s everything you need to know.

When you have bad credit and you need to borrow money, your options don’t usually inspire a lot of confidence. What else can you do but settle for a short-term, high-interest payday loan or title loan?

Well, that’s where no credit check installment loans come in. Like short-term cash advance loans, applying for one won’t hurt your credit, but they also come with longer terms and more manageable payments.

Then again, it’s not like these installment loans are absolutely perfect. They’re not. They come with a long list of pros and cons, just like any other financial product.

With that in mind, here’s an overview of the benefits and drawbacks to borrowing a no credit check installment loan—with a special emphasis on how they stack up compared to payday loans.


Benefit: You can borrow more.

Many states have fairly strict limits as to how much a person can borrow with a short-term payday loan. Usually, the maximum loan amount won’t be more than several hundred dollars.

This means that payday loans won’t be helpful for larger financial needs. Sure, you could use one to stretch your budget over the last few days before a paycheck, but something like a car repair bill or surprise medical expense will probably require more money than a payday loan can provide.

This is where no credit check installment loans can come in handy, as they usually come with much larger average loan amounts. If the bill you need to cover is over $1,000, an installment loan is likely going to be a much better form of bridge financing than a two-week payday loan.

Of course, these loan amounts will vary from state to state, from lender to lender, and from customer to customer. The good thing about no credit check installment loans and payday loans is that you can apply for one and learn how much you’ll be approved for without having an inquiry show up on your credit report!

Benefit: Lower interest rates.

This is another benefit that will vary depending on your specific financial situation, your state of residence, and the particular lender that you’re working with. All that having been said, a bad credit installment loan is very likely to come with a lower annual percentage rate (APR) than your standard payday loan.

You’ll always want to check out the APR for any personal loan that you borrow, but you want to pay special attention to it when borrowing a payday loan. Due to their short repayment terms, the stated interest rates for these loans can vary wildly from their actual APRs.

For instance, a two-week payday loan with an interest rate of fifteen percent has an APR of 391 percent! What?! That’s because APR measures the cost of a loan over one full year. It’s a standardized metric that lets you make apples-to-apples comparisons between different types of loans.

Granted, no credit check installment loans are still going to have a much higher interest rate than regular personal loans. But even an installment loan with a 130 percent APR still comes at less than one-third the cost of a payday loan with an APR of 400 percent.

Drawback: More interest paid overall.

This is one area where comparing bad credit installment loans and payday loans can get a little tricky, so please bear with us. This seems like a truly major drawback on paper, but in reality, it’s a little more minor.

Because payday loans have such short repayment terms, paying one off on time means paying far less in actual interest than you would on an installment loan—even one with a much lower APR.

This is why payday loans seem so appealing. Sure, their APRs are high, but why would you worry about the cost of the loan over a full year? You’re going to pay it back in two weeks! $15 per $100 borrowed is a lot less than $120 per $100, right?! It’s so obvious!

Here’s where things go sideways. Because, yes, on paper, payday loans cost much less than installment loans. But in reality, many payday loan customers struggle to pay their loans back on time. And the longer they are in debt, the more relevant those high APRs become.

Here are some numbers that should give you pause: According to a study from the Consumer Financial Protection Bureau (CFPB), the average payday loan customer takes out 10 loans annually and spends almost 200 days every year in debt. That means paying an effective interest rate between 150 and 219 percent on a payday loan with a 391 percent APR.

So, yes, you’ll end up paying more with an installment loan than you will with a payday loan, even if the former has a much lower APR than the latter. But that’s not the whole story.

Benefit: More manageable payments.

Why do so many payday loan borrowers end up taking out so many loans? Well, the reasons go beyond the interest rate. They also have to do with the size of their payments.

Simply put, many people struggle to pay back several hundred dollars within two weeks. And even if they do make the payment, it oftentimes creates another budget shortfall, which then leads to them taking out another payday loan.

According to a study from The Pew Charitable Trusts, only 14 percent of payday loan borrowers have enough money in their monthly budgets to pay back their loans on time. That’s not a lot!

Borrowers who find themselves in situations like this are often faced with two options. They can roll over their loan, which means that they pay only the interest owed and then get a new repayment term, complete with more interest, or they can take out a new loan immediately after paying off their old one.

This is an area where installment loans have an advantage. Despite their larger loan amounts, their longer payment terms and lower APRs mean that the individual payment amounts are smaller and more manageable.

APRs and interest rates are always important factors when you’re considering a bad credit loan. But don’t forget to check the size of your payments as well. Even a great interest rate isn’t worth it if the individual payments are going to be more than you can afford.

Benefit: Amortizing interest.

While we’re on the subject of interest, let’s talk about amortization. You might not be familiar with that term, but it’s an area where installment loans have a big leg up on their short-term competition.

With an amortizing loan, your interest accrues over time, and every payment you make goes towards both the principal loan amount and the interest owed. Loans that aren’t amortizing, on the other hand, charge interest as a flat fee.

Most installment loans are amortizing, but you should always check to make sure—especially when borrowing from bad credit lenders. With an amortizing loan, paying the loan off early saves you money because less interest accrues—though you should also check to make sure your installment loan doesn’t come with any prepayment penalties.

Payday loans aren’t amortizing, which means that interest is charged as a flat rate right when the loan is issued. Paying back a two-week payday loan in only one week won’t save you anything.

But one of the primary ways that amortizing loans benefit borrowers is by ensuring that every payment gets the borrower closer towards paying the loan off altogether. It’s the opposite of loan rollover, where every payment only goes towards interest, never the principal.

If you’re borrowing a loan, make sure it’s amortizing. And in order to find an amortizing no credit check loan, an installment loan is by far your best best.

Drawback: No credit checks vs. soft credit checks

This is an issue with all no credit check loans, not just no credit check installment loans.

Lenders that don’t do any sort of check on your credit history or your ability to repay are probably not lenders you should be dealing with. No due diligence of any sort is a sign that they might be banking on their customers falling into a predatory debt cycle.

But not all bad credit lenders are like that. Some lenders, including OppLoans, care deeply about their customers’ ability to repay the loans they borrow. (Shocking, right?)

These lenders will not only check your ability to repay your loan, but they’ll also run what’s called a soft check on your credit. This is a check that returns less information than a full (or hard) credit check, but that doesn’t get recorded on your credit report or affect your score in any way.

The reason that people turn to no credit check loans is that they have no other options—and because there’s no use in having a credit check ding your score when you know that you’re going to get denied anyway.

But that doesn’t mean that you should stick with any old lender, no matter what kind of loan you’re taking out. Find a lender that offers amortizing interest and checks your ability to repay—especially if they perform a soft credit check. You won’t regret it.

To learn more about borrowing money when you have bad credit, check out these related posts from OppLoans:

What other questions do you have about bad credit borrowing? We want to hear from you! You can find us on Facebook and Twitter.

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Payday Loans vs Credit Cards: Let’s Break it Down

Inside Subprime: Nov 7, 2018

By Jessica Easto

More than 40 percent of American adults struggle to make ends meet each month, and when people are forced to make tough choices between material necessities like food, medication, and housing, they often turn to quick funding solutions, such as payday loans and credit cards.

Payday loans, also know as “cash advances,” are short-term, small dollar loans that come with very high interest rates. On average, payday loans terms are for two weeks, and they rarely exceed a month. Credit cards are essentially short-term, small-dollar loans, too. They allow you to borrow money from financial institutions such as banks and credit unions to make purchases and then you pay for them later.

Both payday loans and credit cards charge annual percentage rates, or APRs. APRs tell you how much a loan will cost—that includes its simple interest rate and any extra charges and fees—for one full year, allowing you to compare the cost of different loan and credit line products. However, payday loans tend to have extremely high APRs: 400 percent compared to below 20 percent for a credit card. Additionally, you don’t have to pay any interest on your credit card purchases as long as you pay them off in full by the end of your billing cycle, which is usually a month.

When used responsibly, credit cards can actually help you build credit and improve your credit score. In fact, you need fair credit in order to get a credit card—it’s usually difficult to get one if your credit score is below 550, and you have more options when it’s higher. Payday lenders often require no credit, making payday loans an alluring option when there aren’t many choices.

This is one reason why payday lenders are often considered predatory while the institutions that issue credit cards are generally not. A predatory lender uses deceptive practices and misleading terms to profit from borrowers—usually those in desperate situations. Many payday lenders require you to write a post-dated check when you sign the loan, and they cash it the day your payment is due. If you can’t pay at that time, you may forced to “roll over” your loan—for additional fees and interest of course. In this situation, a small $200 loan and quickly balloon out of control, creating a cycle of debt that is hard to escape.

Credit card debt is still a huge problem in this country, with almost 40 percent of households having revolving credit card debt, or a balance that is not paid off in full during the billing cycle. But most experts agree that payday loan debt is far worse than credit for several reasons:

  • Payday loans have much higher interest rates than credit cards, which means faster escalating debt if you are unable to repay the loan on time.
  • Even if you can’t pay your credit card off right away, you are allowed to make minimum payments, which are usually affordable. Although you will still accrue interest, credit card terms give you more flexibility while you get back on your feet.

The best way to minimize your exposure to the risks of payday loans and credit cards is to understand your finances and learn how to avoid predatory lending.

For more information on scams, payday loans and title loans, check out all of our state-by-state Financial Resource Guides.


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10 Good Money Habits to Make Your Friends Jealous

10-good-money-habits-to-make-your-friends-jealousThere are better reasons to save money than wanting to make your friends turn green with jealousy. But as motivating factors go, this one ain’t half bad.

We love our friends. After all, if we didn’t love them, they’d be our enemies. But that doesn’t mean that we can’t also love making them a little bit jealous of the fabulous life we’re leading. This is probably why someone invented the term “frenemies.”

Then again, there are tons of folks out there who would enjoy making their friends (or frenemies) jealous but are unfortunately stuck on the other side of that fence. You know, the one where the grass is definitely not greener.

That’s why we’re here. Forget trying to keep up with the Joneses; just follow these 10 pieces of financial advice and everyone else will be trying to keep up with you.


1. Pay yourself first.

Raise your hand if this is your approach to saving money: You take care of all your bills and living expenses and then you sock away anything you have left over. Are you raising your hand? We can’t see you, obviously, but we’re going to assume that you are.

Paying yourself first means turning this whole arrangement on its head. Instead of saving what’s left over, put money into savings first and then spend the rest. You probably think that’s nuts, that your budget is much too tight to prioritize saving money.

And you know what? We get it. But if you give this method a try, we think you’ll be surprised how flexible your budget can be. When you focus on paying yourself first, the rest of your budget will pretty much fall into place.

While your friends are scrambling to save up money for a vacation or to put away for a rainy day, you’ll be sitting on a sizeable nest egg. Try it!

2. Automate your saving.

Starting a new savings practice can be like starting a new exercise routine: The hardest part is instilling the disciple to just go out and do the dang thing. But what if you could outsource that part of your exercise routine, like a fitness tracker that would actually get you out of bed and to the gym at 6 am every day? Wouldn’t that be so much easier?

Well with saving money, this is something you can actually do! Let the robots be disciplined on your behalf through automatic deductions and transfers. As soon as your paycheck hits your account, money will be moved over to your savings account. Out of sight, out of mind. Your friends will wonder how you do it.

3. Set big goals.

Practicing good financial habits is rewarding, but it can also be pretty tedious at times. But you can both alleviate some of that tedium and achieve even bigger things by setting big, ambitious goals.

You want to build up $1,000 in savings? Great. But what about $10,000 in savings? Working towards a bigger goal will help you focus your mind, step up your efforts, and get creative with your money. The bigger your goals, the more you’ll do to achieve them.

Of course, there’s a flipside to this. Don’t set goals that are so ambitious that you have no hope of achieving them. Dream big, but dream realistically.

Saving is hard enough, and it’s much harder when you don’t know what you’re saving for. Whether it’s an emergency fund, your retirement, your kid’s education, a big vacation, or a new car, these goals will help you stay on track.

Oh, and speaking of emergency funds…

4. Start an emergency fund.

What’s an emergency fund? It’s really just another word for savings, but it’s money that’s being saved with a specific purpose in mind. Unlike money that you put into retirement accounts—which you aren’t planning on touching until decades from now—or money that you’re putting towards a major new purchase, your emergency fund is for, well, emergencies.

With your emergency fund, you’re not worried about that money earning interest or being locked away where you can’t touch it. Being able to access those funds in a time of crisis is the whole idea! You might even want to maintain your emergency fund in cash.

So what’s the best amount to keep in your emergency fund? Well, we recommend that you start with $1,000. But after that, you shouldn’t rest on your laurels. The ideal amount to have in your emergency fund is enough to cover six whole months worth of living expenses.

That may sound like a lot, but it could be a literal lifesaver. It’s hard to watch someone who loses a job or suffers an injury and has their finances spiral out of control. With a well-stocked emergency fund, you’ll be prepared for the worst.

5. Eliminate your debt.

The odds are good that both you and your friends have more debt than you want to admit. Whether it’s credit card debt, student debt, or mortgage debt, all that money you’re putting towards interest every month is money that could be much better spent working for you.

So if you really want to make your friends jealous, make paying down debt your number one priority. Start with consumer debt (also known as “bad” debt), like credit cards and personal loans. These usually come with much higher interest rates, and they make zero contributions to your total net worth.

In order to get out of debt, you’ll need a plan of action. We recommend either the Debt Snowball or the Debt Avalanche. In short, these methods involve putting all your extra debt repayment funds towards one debt at a time. And when you pay off that first debt, you then roll over its minimum payment towards the next debt down the line.

Here’s the difference: With the Debt Snowball, you pay off your smallest debt first; with the Debt Avalanche, you pay off your debt with the highest interest rate.

Debt can be a massive burden, tying you down to a job or a city that you would rather get out of—you just can’t afford to. Escaping from under that burden will give you the freedom to do things you always dreamed of. If that won’t make your friends jealous, we don’t know what will.

6. Live below your means.

This one might seem a little bit obvious, but there’s still a good chance that you’re not doing it. If you want to save more money, than living below your means is a must. If every dollar you make each month is only going towards bills and other living expenses, then you’re never getting ahead. When it comes to money, you’re only ever treading water.

Basically, living below your means involves living as though you make less money than you do. If your total post-tax income every month is $4,000 for example, then rearrange your lifestyle so that you’re only spending a total of $3,000 on everything.

That extra $1,000 can then be put towards your emergency fund, your retirement accounts, or any big purchase you’re saving up for. Living like you make less money now means that you’ll have more money to live on down the line. While your friends are treading water, you’ll be roaring by them on a custom jet ski.

7. Check your credit report.

Keeping an eye on your credit score is always a good idea, but this means going one step further. By regularly checking your credit reports, you’ll understand all the areas where you need to improve your credit and you’ll be able to keep an eye out for identity theft.

Your credit reports are documents that track your past seven years as a borrower and credit consumer. (Some information, like bankruptcies, stays on your report for a bit longer.) You actually have three credit reports, each compiled from the three major credit bureaus: Experian, TransUnion, and Equifax.

By law, each of the credit bureaus is required to provide you with one free copy of your report annually upon request. If you order one report every four months, you will be able to pretty consistently track your credit history—all without paying a dime!

Credit reports can also contain errors, which might be artificially deflating your score. To request a free copy of your credit report, just visit AnnualCreditReport.com. If you need to dispute an error on your report, you can follow the instructions in our blog post, How Do You Contest Errors On Your Credit Report?

8. Get a side hustle.

Saving more money isn’t just a matter of cutting down on your expenses. You can also boost your savings by earning extra income! You could do that by getting a better paying job or asking your boss for a promotion (and a raise), but picking up a side hustle is probably faster.

There are tons of ways you can go about this. For instance, you could start driving for a rideshare service or work for any other number of “Uber but for X” companies. You could also pick up a second job or start your own entrepreneurial venture.

Whatever you do, just make sure that you aren’t burning yourself out or letting all that extra income turn into extra spending. Oh, and really do that math on your expenses to make sure that the money you’re earning is worth the extra stress.

While a second job might not make your friends jealous in the short-term, all the great things you’ll be able to do later on with that extra money sure will.

9. Steer clear of payday loans.

This is another great reason to build up an emergency fund. When you have an unexpected bill or a financial gap that needs to be plugged, turning to payday loans is the last thing you should be doing. With their high interest rates and lump-sum repayments, they might just make your bad financial situation even worse.

The same holds true for other types of short-term no credit check loans like cash advances and title loans, which can come with APR’s upwards of 300 and 400 percent. Plus, you’ll have to pay the loan back all at once, which can create yet another shortfall. This is how people end taking out loan after loan after loan and becoming trapped in a predatory cycle of debt.

When life knocks you on your butt, building up your savings means having a financial cushion to soften the landing. And while you could always turn to a longer-term bad credit loan (like an installment loan) to bridge your financial gaps, the best solution here means skipping loans altogether.

10. Responsibly maximize your credit card rewards.

If you want to travel more or be able to splurge on holiday spending, then credit card rewards are a great way to make that financially feasible. You’ll need a good credit score to do so, but racking up points and miles can help you live a little bit larger than you otherwise would.

Here’s the thing: Credit card rewards can be great, but you absolutely cannot let them encourage you into overspending. Having to pay interest on excess credit card debt will pretty much wipe out all the good that rewards points can do. It’ll actually make them … pointless.

To get the most from your rewards, consider consolidating all your credit card transactions onto one or two cards. And if you really want to be responsible, you should look into transferring all cash-back rewards directly to your retirement accounts. It’ll be less fun, but your future self will thank you for thinking ahead.

We actually wrote a whole blog post on this subject recently, so we suggest you check that out. In the meantime, making your friends jealous probably isn’t the best reason to get your financial house in order, but if it works for you, then we wish you the best of luck.

To learn more about saving money, check out these related posts from OppLoans:

What are your best strategies for saving money? We want to hear from you! You can find us on Facebook and Twitter.

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5 Tips for Turning Bad Credit into Good Credit

There’s no magic spell to turn a lousy credit score into a stellar one. But there are still plenty of steps you can take to fix bad credit.

Going from bad credit to good credit can feel impossible. It isn’t always obvious how certain choices will affect your score, and the things that will most obviously benefit your credit aren’t always easy to do.

And that’s unfortunate because your credit score is very important. Being stuck with a lousy score makes it way harder to take out personal loans and credit cards, or even find an apartment.

When an unexpected bill arises, you might even find yourself turning to predatory no credit check loans like payday loans, title loans, or cash advances just to get by!

But never fear! With a little bit of knowledge and a whole lot of dedication, you too can make your credit score increditable!


1. Learn what’s hurting your score.

As we said above, it might not always clear what will hurt your credit. So before you can start fixing your score, you need to figure out why it’s so low in the first place.

“There are many things that can hurt your credit score,” warned Mark Charnet, founder and CEO of American Prosperity Group. “Obviously, not paying on time is one of those things. Paying less than the minimum payment required or bouncing a check will also lower your score.

“There are also lesser known things that can hurt your credit just as badly. For example, canceling an inactive credit card can lower your score, even if you don’t have a balance on that card.

Being excessively obligated, meaning having too much credit, is also a negative. Frequent changes in your occupation or address can also result in a lowered score.

“Your spouse’s credit can affect you as well, so it’s important that both of you are on the same page financially.”

You shouldn’t avoid moving or getting married just because you’re trying to fix your credit score, but it’s important to be aware of these things. That way, you can be prepared for the possible credit hit and plan to counteract it accordingly.

2. Pay all your bills on time.

This is easily one of the most important and most known factors. It’s come up two times already in this very article.

“Pay your debt before due dates,” advised Jory McEachern, a credit specialist at ScoreShuttle (@scoreshuttle). “Make it a habit to pay off your credit debt once a week rather than once a month. That way, your available credit line stays the same.”

Charnet echoed the importance of paying your bills on time: “To help your credit, you should pay on time to demonstrate responsible use of your credit worthiness.

“Paying monthly bills on time like your mortgage, auto loan, or bills will raise your score over time. If possible, pay more than the minimum amount required each month.

“Long-term stability with your employment, home address, and marriage also helps keep your credit score at a good level. Regardless of their balance, you should have verifiable savings, investments and retirement accounts.”

In case it hasn’t been made clear, paying all of your bills in full and on time is one of the most important steps to fixing your credit.

3. Keep your credit lines open.

When it comes to improving your credit score, paying down your excess debt is usually a must. But don’t get too overzealous or it could come back to bite you. As Charnet mentioned, closing credit cards once they’re paid off can actually hurt your credit score.

Your credit utilization ratio—or how much of your available credit you’re using—is an important factor in your score. So long as you’re using credit responsibly, a higher amount available credit means a better ratio.

“Keep your credit card accounts open,” suggested McEachern. “Although you may have stopped using one or more of your older credit cards, don’t close them!

“Your payment history affects your credit. If you delete one or more credit cards that you’re not using, you’re also deleting your credit history and your available credit line decreases. No good!

“If you only have one credit card account, open more. You can improve your credit just by opening a variety of credit accounts, which shows that you can manage money if you pay all your credit card debt on time. Sometimes, more is more!

Of course, the temptation with having multiple open credit lines is to use them!  And the more credit you have available, the easier it will be to rack up debt. That’s not good!

If you have multiple credit cards, for instance, make sure you leave most of them at home. The less accessible you make your extra credit lines, the easier it will be to manage your finances responsibly.

“Ask for an increased credit line,” addsMcEachern. “The higher credit line you have, the more likely you are to keep a low credit card utilization which helps improve your credit.”

Having no credit lines doesn’t mean you have good credit. It means you have no credit. So generally the more credit you use, the better, as long as you (say it with us) actually pay your bills in full and on time.

4. Check your credit report for errors.

Your credit score is based on information on your credit reports, which are compiled and maintained by the three major credit bureaus: Experian, TransUnion, and Equifax.

And guess what? These reports can contain mistakes!

Here’s McEachern: “On your credit report, there are often one or many errors that you have the right to fight off on your report. By disputing these claims, your credit score can improve by more than 100+ within a few months. Everything from name spelling errors and old outdated information can be dragging down your score.”

To see if your credit is being docked due to errors on your report, all you need to do is order a free copy by visiting AnnualCreditReport.com. All three bureaus are required by law to provide you with one free copy of your credit report annually.

If you find an error, you’ll have to dispute it. To learn more, check out our blog post: How Do You Contest Errors On Your Credit Report?

5. Write a letter of explanation.

Even if there aren’t errors on your credit report, per se, that doesn’t mean that reading that you can’t take action.

“If there are any blemishes on your credit report from the reporting agencies, it is your right to write a statement that by law must be included in future requests of your profile by lenders and potential credit grantors,” Charnet told us.

The term for a document like this is a “letter of explanation.” While they’re most commonly associated with mortgage applications, letters of explanation can help overcome a bad credit score, too.

“This statement should be used to explain the reasons for the negative entries i.e. was temporarily unemployed due to the company shutting down and my inability to find employment for 6 months.

“Or an illness from you or your spouse caused a reduction in compensation leading up to the negative entries that have been rectified since returning to full-time employment. Or lastly, if there was a death in your immediate family that created a financial hardship.

“These are just examples of what may be added to your report and must be factual. In this way, potential credit grantors will not have to anticipate why there are negative entries, they will know the exact reasons and what was or is currently being done to rectify the situation to restore your credit.

“Remember the most important rule of seeking credit with a lower credit profile than you would prefer: Facts tell and stories sell. You cannot personally appear to the lending board, but you certainly write a story about yourself to let them see you through your words.”

Including a letter of explanation can have its downsides, however, especially if it means admitting a late payment has been correctly marked. Depending on the situation, it might be better to leave well enough alone.

Every credit situation is different, but these tips should apply to many different situations. Now go out, and pay those bills on time! To learn more about fixing your credit score, check out these related posts from OppLoans:

What else do you want to know about fixing bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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Contributors

Mark Charnet, founder and CEO of American Prosperity Group, has been in the retirement and financial estate planning field for over 35 years. Mark has numerous certifications and credentials, including Life and Health Insurance, Certified Annuity Specialist and FINRA Series 6, 63, and 65 Securities Licenses. APG’s unique approach to retirement and legacy planning allows clients to retire with confidence.
As a credit specialist at ScoreShuttle (@scoreshuttle), Jory McEachern helps individuals reach their ideal credit score so that they can qualify for all the important things in life. With ScoreShuttle’s online first-of-its-kind technology, members receive the most current updates and tips and advice on how to boost their score, fast.

How the Affordable Housing Shortage is Hurting Your Bank Account

There aren’t enough affordable home and apartments to go around, which means that rent and mortgage payments are taking a big bite out of people’s paychecks.

For millions of Americans, just trying to live an average life seems out of reach. Even with a roaring economy, they feel like they’re earning less than they should, and the cost of necessities like housing and a car eat up a huge portion of their budget.

And you know what? They’re right. Unless you’re a high earner, America can be a tough place to live right now. Incomes are stagnant and costs are up: the perfect recipe to squeeze the average bank account dry.

One thing that’s more expensive nowadays is housing, with a nationwide shortage of affordable housing making the pinch even more painful. And it’s not just affecting homeowners, either; it’s making life more difficult for renters, too.

Here’s what you need to know.


How bad is the affordable housing shortage?

Every year since 1988, the Joint Center for Housing Studies of Harvard University releases a report called State of the Nation’s Housing. According to their 2018 report, there is a real divide between the demand for affordable housing and the supply of housing that’s available, one that is driving price increases well beyond normal inflation.

From the report:

Homeownership rates among young adults today are even lower than in 1988, and the share of cost-burdened renters is significantly higher. Soaring housing costs are largely to blame, with the national median rent rising 20 percent faster than overall inflation in 1990–2016 and the median home price 41 percent faster.

In short: average housing costs take up a larger portion the average paycheck than they did 30 years ago. Money that once went towards food, household expenses, leisure, transportation, you name it, now goes towards simply keeping a roof over one’s heard.

As anyone who was around for the 2007 mortgage crisis will remember, sometimes the housing market goes a little wacky, with massive price increases being driven by easy credit and wild expectations of profit.

But the issue here appears to be a different one. While there are several factors driving this outsized rise in housing costs, one of the primary factors is simply a lack of lower cost units. The folks who are being squeezed the hardest by these higher prices are the ones who can least afford it.

What’s causing the affordable housing shortage?

The Station of the Nation’s Housing report is a fairly sober document, which means they avoid making sweeping conclusions, and they admit when they’re not sure about something. With the housing crisis, they point to several competing factors that are driving up costs.

  1. Stagnant incomes: The report found that the bottom 25 percent of the U.S. has seen only three percent median income growth since 1988, while adults aged 25-35 (the normal range for first-time home-buyers) saw increases of only 5 percent. For comparison, the country’s per capita GDP grew 52 percent over the same time period. As the authors put it, “If incomes had kept pace more broadly with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs—underscoring how income inequality has helped to fuel today’s housing affordability challenges.”
  2. Fewer new “entry-level” homes being built: According to the report, there were only 163,000 small single-family homes completed in 2016, representing  22 percent of all single-family construction. From 1999–2007, these types of homes represented 33 percent of new construction. “Entry-level” homes are generally smaller and more affordable, perfect for first-time home buyers. With less of these homes available, its harder for people to become homeowners.
  3. Less single-family construction leads to less supply overall: In fact, the problem isn’t just fewer entry-level homes being built, it’s that there are fewer single-family units on the market in general. The report states that “only 610,000 single-family homes were added to the stock annually in 2008–2017.” In order to keep up with demand, they would have needed to add 1.1 million. Fewer new homes mean fewer options for both new and existing homeowners. With supply unable to keep up with demand, prices have risen.
  4. Impediments to homebuilding:  The report makes clear that homes today are generally better made and with nicer amenities than the homes that were being built 30 years ago. Nicer homes with better materials can lead to higher prices all by itself. Still, the authors also cite four primary reasons why building a home is more expensive now than it used to be. The first is a shortage of skilled workers and a corresponding increase in labor costs. The second is an increase in the prices of both raw and manufactured materials. Third is an increasing scarcity of land, especially in booming metro areas. Last, they cite local regulations and fees that not only increase the cost of construction but often disincentive large-scale housing projects that would increase the population density. Less efficient land use causes price hikes.
  5. Fewer public subsidies: The authors of the report specifically mention that expanding the supply of affordable housing will not entirely solve this crisis. Without increased subsidies for very low-income households, issues will remain. “Between 1987 and 2015,” they write, “the number of very low-income renters grew by 6 million while the number assisted rose only 950,000, reducing the share with assistance from 29 percent to 25 percent.” They point to the housing choice vouchers administered by the Department of Housing and Urban Development and the Low-Income Housing Tax Credits (LIHTC) administered by the Treasury Department as two key programs that have not kept up and should be bolstered to provide additional support.

Less affordable housing means higher rents, too.

Earlier in this post, we cited a passage that mentioned “cost-burdened” renters. Being cost-burdened refers to people and families who pay more than 30 percent of their income towards housing. From the report:

The cost-burdened share of renters doubled from 23.8 percent in the 1960s to 47.5 percent in 2016 as housing costs and household incomes steadily diverged, with the largest increases occurring in the 2000s. Adjusting for inflation, the median rent payment rose 61 percent between 1960 and 2016 while the median renter income grew only 5 percent (Figure 6). The pattern for homeowners is similar, with the median home value increasing 112 percent and the median owner income rising only 50 percent.

You read that right, almost 40 percent of renters are overly burdened by the cost of their housing. Discussions around housing often circle around homeownership, but these issues don’t just affect those who own. A lack of affordable housing supply means all types of people are affected.

Think about it: stagnant incomes don’t differentiate between renters and homeowners, while higher building costs and labor, plus more expensive land, affects the cost of constructing apartment buildings, not just single homes. The same goes for insufficient public subsidies.

Unless you have owned your home for a really long time, this affordable housing shortage is almost certainly draining funds from your bank account. That’s money that you could be putting towards an emergency fund or to pay for your children’s education. This a crisis that pretty much affects us all, whether we like it or not.

So what can you do?

At a different type of personal finance blog, they might tell you to wait until the inevitable housing crash that’s coming courtesy of our overheated economy, swooping in when prices are at their absolute rock bottom.

Yeah, we’re definitely not that kind of finance blog. Instead, the advice we can offer you is pretty simple. If you’re looking to buy a home, become an ace at saving money and build up a large down payment.

First-time homebuyers can often get their mortgages approved with much lower down payments, but that will mean larger monthly payments, which could be a worse situation overall. Still, if you find something in your price range, certainly take advantage of the opportunity.

Aside from that, the best thing you can do is to consider moving to an area where the cost of living is more affordable. The State of the Nation’s Housing report makes clear that affordability varies wildly depending on location. Buying a home in Fargo, ND is much easier than buying one in San Francisco, CA. Just make sure there are plenty of jobs where you’re moving, as well.

This isn’t an issue that can be solved on a personal level. It’s a grand public policy debate that will need years to sort out—and even then, there aren’t any guarantees that the problem will be solved. In the meantime, the best you can do is take care of yourself by building up your savings and maximizing your income, either through a new career, a big promotion, or a successful side hustle.

One last thing: If you’re looking to get ahead financially, stay away from predatory no credit check loans like payday loans, title loans, and cash advances. Even if high rents are draining your bank account, these types of short-term bad credit loans won’t make things any better. In fact, they could trap you in a dangerous cycle of debt that could take you from paying too much to getting evicted altogether.

To learn more about saving money, check out these related posts from OppLoans:

What’s the cost of housing like in your area? We want to hear from you! You can find us on Facebook and Twitter.

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What Are the Side Effects of Bad Credit?

A bad credit score can negatively affect your everyday life (and your personal financial outlook) in ways you wouldn’t expect.

Okay, so you have bad credit. Awesome.

Actually, no, wait. Not awesome. The opposite of awesome. Your credit score is one of the most important numbers in your life, and a poor credit score pretty much means entering a world of financial hurt.

And here’s the real kicker: You might think you know all the ways in which a bad credit score will screw with your finances. But in fact, the effects are way more widespread than that.

Here are five of the main side effects you’ll experience when you have lousy credit.


1. You’ll be stuck with much riskier loans. 

A bad credit score is going to shut you out from the kinds of personal loans offered by traditional lenders like banks. Heck, even a so-so credit score will oftentimes leave you high and dry. Instead, you’ll be stuck with bad credit loans and no credit check loans, which come with much higher interest rates than regular loans.

And when we say higher, we mean way higher. Your standard unsecured personal loan will have an Annual Percentage Rate (APR) anywhere from five to 36 percent. Your average payday loan, on the other hand, has an average APR of 391 percent. That’s over 10 times higher than the most expensive personal loan! The same goes for cash advances (which are basically payday loans using a different name) and title loans, which have an average APR of 300 percent.

Don’t get us wrong, the right bad credit loan can be a great financial solution when you’re dealing with surprise expenses. But many bad credit and no credit check loans also come with short terms and lump sum repayments that can make them incredibly difficult to pay back on time. That’s how borrowers end up getting stuck in a nasty cycle of debt. (If you want to skip that predatory debt cycle, consider taking out an amortizing bad credit installment loan.)

But having to resort to riskier and more expensive types of loans is one of the most obvious ways that a bad credit score can affect your finances. The next items on this list are a little more surprising.

2. You could have trouble renting an apartment. 

You might not know this, but potential lenders aren’t the only ones that look at your credit score or pull copies of your credit report. This practice is pretty much standard for potential landlords when they’re considering a person’s rental application.

After all, a history of things like delinquent accounts, repossessed cars, evictions, and late or missed rent payments all speak to whether or not you might be a good tenant and whether they’ll have to hound you every month to get your rent paid.

Apartment hunting with a lousy credit score will mean more rejections and requests for larger security deposits. If you’re in this situation, you should look for individual landlords over big rental companies, as they’ll be more likely to make exceptions.

Looking for less trendy neighborhoods, snagging yourself a co-signer, and offering to pay more than the requested amount up front are all ways to get an apartment despite your bad credit. And when in doubt, be honest and explain yourself, maybe even in an official letter of explanation. Potential landlords will respect that.

3. You could be stuck paying extra for utilities. 

Once you’ve paid double the normal deposit for that new apartment and you’ve got your move-in date set, it’ll be time to turn your attention to utilities like water, gas, electricity, internet, and (maybe) phone or cable. No problems here, right?

On the contrary, this is another area where your poor credit score will set you back. Utility contracts are a form of credit called “open accounts” where every month you have a certain amount of money that needs to be paid in full. And while these credit accounts don’t involve any interest, the utility company will still be interested in your credit score.

While a bank might simply turn you down based on your credit score, the utility company will probably just charge you higher rates. (Failure to pay, however, will indeed get your service shut off.) The utility company might even ask for a large up-front deposit—up to one-sixth the cost of your annual service—or a “letter of guarantee” before they’ll sign you up.

4. Your car insurance rates might go up. 

Here’s the funny thing about this bad credit side effect. While insurance companies won’t actually check your credit score when you apply with them, they will take the same information that appears on your credit reports and feed it through their own super-secret formula to create a “credit-based insurance score.”

The difference between this score and your regular credit score is that this score has a different goal in mind: It’s designed to determine how many claims you’ll file. The more claims you’ll file, the more money you are going to cost the insurance company. To offset that cost, they’ll then charge you higher rates.

The reason that insurance companies do this is fairly simple. According to a 2007 report from the Federal Trade Commission (FTC) titled Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, these scores work:

“Credit-based insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums.”

So while bad credit might not directly translate to higher rates for your car insurance, a poor credit score is still a likely indicator that you’ll be paying more.

5. Your job application could end up in the trash. 

This is the rarest side effect of bad credit, but it’s one you should still be aware of. Bad credit could be the thing that prevents you from getting hired for a job—and, in some circumstances, it could even mean getting fired.

Some employers run pre-employment credit checks when hiring. While they don’t check your credit score, they will still get a copy of your credit report, which will contain all the information that led to your poor score. These checks need to be run with your permission, but refusing to give your permission could very well knock you out of the running.

While these credit checks could be used as a tie-breaker between two equally impressive candidates, they are also very common in positions and industries where handling large amounts of money is part of the job. It makes sense: A person who isn’t good with their own money probably shouldn’t be in charge of other people’s money.

Similarly, employers in many states can run credit checks on their employees. While you are much more likely to run into a credit check when you’re being hired for a position, you can certainly encounter one at a company you already work for—especially if you’re up for a promotion.

Unless, of course, you live in one of the many states where these practices are restricted. To learn more about the laws regarding employer credit checks in your state, check out this report from the alternative credit reporting agency Microbilt: State Laws Limiting Use of Credit Information For Employment.

As this blog post has demonstrated, having lousy credit sucks—perhaps in more ways than you anticipated! If you want to read about some ways you can improve your credit, check out these related posts from OppLoans:

What else do want you know about living with bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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Are You Opening a Bank Account with Bad Credit? Here’s What You Need to Know

While a bad credit score won’t prevent you from opening a checking account, similar poor money habits with previous bank accounts could pose a problem.

We’re not going to tell you that having a bank account is absolutely necessary. If you’re the type who prefers stuffing your money into mattresses and keeping most of your wealth in the form of precious metals buried in the backyard, all the more power to you.

But for most people, maintaining a checking account is a financial cornerstone. Without a bank account to hold onto your money, you end up spending money at check cashing stores just to access your funds, and relying on cash payments or costly wire transfers just to pay your bills!

If you have bad credit and need to open a checking account, you probably have a lot of questions. (That’s why we’re writing this blog post!). Bad credit can restrict your access to important financial products like personal loans and credit cards, but will it do the same for checking accounts?


You can open a checking account with bad credit.

Let’s start with the good news. Having a poor credit score will not prevent you from opening a bank account.

Your credit score is taken from information on your credit reports, documents that track your history as a borrower, and are compiled by the three major credit bureaus: Experian TransUnion and Equifax. The most common type of credit score is the FICO score, which is scored on a scale of 300 to 850. The higher your score, the better your credit.

Your FICO score is, indeed, used by traditional lending institutions like banks and other personal lenders to determine whether or not to lend to you, but it isn’t used when you apply for a checking or savings account.

With a lousy score, you’ll be stuck borrowing no credit check loans (like payday loans and cash advances). But you’ll still be able to open a checking account … probably.

Bad credit behavior could hurt your ChexSystems score.

Okay, here’s the bad news. While banks don’t use credit scores with checking account applications, they do use something very similar, oftentimes from ChexSystems, one of several national consumer reporting agencies that track your banking history. Banks use them (or one of their competitors like Telecheck or Early Warning System) for checking account applications just like they use FICO scores and credit reports for loans and credit cards.

Not only does Chexsystems produce a Consumer Disclosure Report, they even produce a Chexsystems Consumer Score that’s graded on a scale from 100 to 899. If your score is too low, your application for a checking account will be denied. The bank will look at your banking history and decide that you simply pose too great a risk!

And what kind of behavior is considered “bad” when it comes to banking? Well, it’s stuff like bank overdrafts, bouncing checks, and racking up bank fees and then not paying them. Behavior like this points to a customer who is not using their bank account in a responsible manner.

Luckily, a bad Chexsystems Consumer Score is not permanent. Information remains on your Consumer Disclosure Report for five years before dropping off entirely. Five years of good banking behavior (or at least no bad behavior) and you’ll be all set.

But what if you don’t want to wait five years to open a checking account?

Open a second chance checking account.

Folks with a bad credit score are still able to take out a loan. Sure, it might come with a much higher interest rate and—in the case of a payday loan, cash advance, or title loan—trap them in a dangerous cycle of debt, but it’s still a loan that they can get approved for.

Similarly, people with a bad ChexSystems Consumer Score can still apply for a checking account. Many banks offer “second chance” checking accounts that give people with lousy banking history the chance to make good. You should also check out your local credit union, as many of them offer second chance checking as well.

But just like those higher interest rates for bad credit loans, second chance checking accounts come with more fees and restrictions than traditional bank accounts, and they also offer far fewer perks.

In order to get a second chance checking account, you will almost certainly have to pay a monthly maintenance fee. And the account might also come with additional requirements like maintaining a minimum balance or having direct deposit. Plus, you still might not get a debit card with the account or be able to use it for online bill pay.

But here’s the best reason by far to use a second chance checking account: Many of them come with graduation plans. That means that using the account responsibly for one to two years will get you upgraded to a regular checking account ahead of schedule. That’s fantastic!

Take care of your Chexsystems Consumer Score.

Even if you can graduate to a regular checking account by starting with a second chance account, you should still take care of your ChexSystems Consumer Score. In fact, you should treat it the same way that you treat your regular credit score.

First things first: order a free copy of your Consumer Disclosure Report. (By law they have to provide you with one free copy every year upon request.) You can request a copy on ChexSystems’ website or you can contact them by phone at (800) 428-9623.

Next, read over your report so that you can get a clear idea of where you went wrong. If you have any unpaid fees or charges, pay them! If you can’t pay all of what you owe, try negotiating for a lower amount. And make sure that the financial institution in question updates their records with Chexsystems once the charge is paid off!

Lastly, make sure to check for errors. If you find one, contact Chexsystems to have it corrected. After you’ve gathered the proper documentation, go to the Dispute section of Chexsystems’ website for more information. They should send you a resolution within 30 days. You can also dispute the info directly with your (likely former) financial institution and have them update ChexSystems.

Bad credit means living in a world with strict financial limits. And while it’s a great thing that checking accounts still lie within those limits, never forget the following: The kinds of poor money habits that cause bad credit are the same kinds of habits that can cost you a checking account.

To learn more about living life with bad credit, check out these related posts from OppLoans:

What other questions do you have about bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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Can Paying Off Your Student Loans Hurt Your Credit Score?

Sometimes, your credit score will react to certain financial behavior in unexpected ways. What happens when you pay off your students loans is a great example.

When that day comes and you finally pay off your student loans, it will be a serious cause for celebration. You can take all that extra money that you were putting towards your loans and throw an awesome party for you and your friends! Although, if your friends are still paying off their student loans, they might think you’re being kind of a jerk.

No matter. It’s your time to shine. It’s not like there are any downsides to paying off your student loans, right? Wrong. In fact, paying off a student loan can actually hurt your credit score. Now, this isn’t something that should prevent anyone from paying off their student debt—the benefits still far outweigh the drawbacks—but it is a slight annoyance you’ll have to deal with.

Here’s why paying off your student loans could actually cause your credit score to drop …


First, a brief refresher on credit scores.

Even if you know the difference between a great credit score (generally 720 and above) from a bad credit score (below 630), you still might not understand how a credit score actually works. Don’t worry! It’s really not that complicated.

Credit scores are like a grade on how well you’ve used credit over the past seven years. They are based on information from your credit reports, which are compiled by the three major credit bureaus—Experian, TransUnion, and Equifax. The most common type of credit score is the FICO score, which is graded on a scale from 300 to 850.

Your credit score reflects how much money you’ve borrowed, what types of credit you’ve used (like loans versus credit cards), whether you pay all your bills on time, how long you’ve been borrowing for, and whether or not you’ve applied for more credit recently. All that info is fed through a semi-secret formula to produce a single three-digit number that summarizes your creditworthiness for potential lenders, landlords, etc.

One thing we do know about that semi-secret formula are the different categories of credit info. First, there’s your payment history, which makes up 35 percent of your total score, followed by your amounts owed (30 percent). Next there’s the length of your credit history (15 percent), and finally, there’s your credit mix and your recent credit inquiries, which both make up 10 percent.

It’s all about the credit mix.

Normally, when we write about the factors that are important to your credit score, we focus on, well, the two most important factors to your score: your payment history and your amounts owed. But when it comes to student loans, it’s one of the other three factors that takes center stage: your credit mix. This category tracks the different kinds of credit that you use: Namely, how many revolving accounts you have versus how many installment accounts.

Revolving accounts are things like credit cards, where you borrow money against a set credit limit and then make payments on that amount. Installment accounts, on the other hand, are your standard type of loan, where you borrow a chunk of money and then pay it back in regular installments. This covers student loans, as well as personal loans, auto loans, mortgages, etc.

In order to have a healthy credit mix, you need to have, well, a healthy credit mix! If the only debt you have is credit cards, you’re going to get dinged for that. And if the only debt you have is all tied up in installment loans, you’ll get dinged for that too!

Bye-bye student loans, hello lower credit score.

When you pay off a loan or close a credit card, that account gets marked as closed on your credit report and your credit score gets updated. So when you pay off one of your student loans, your score then gets refreshed to reflect that you have one less installment account then you did previously.

And guess what? That’s probably going to make your score go down! This is especially true if you don’t have any other outstanding installment accounts. If you don’t have a personal loan, auto loan, or a mortgage, those student loans might have been the only installment account you had open. Plus, the odds are good that you do have a credit card—or five.

That’s not all! Has anyone told you that you shouldn’t close out an old card once you’re done using it? One of the reasons you shouldn’t is that older credit accounts also help your score. Your student loans are very likely the oldest credit account you have, so paying it off will lower the average age of your accounts, which can also cause your score to drop.

Even if your score drops, you should still celebrate.

So there it is. When you finally pay off your student loans, it could hurt your credit score. How much will it cause it to drop? Well, we actually don’t know. People’s credit scores can be pretty particular to their specific financial situations, so there’s no real way of telling.

But you know what? Even if your score does drop, it’ll be worth it. So long as you’re making all your payments on time and not taking out more debt than you can handle (pro tip: never let your outstanding credit card balances exceed 30 percent of your total credit limit), you’ll be just fine in the long run. Enjoy putting all that extra money towards more rewarding stuff.

To learn more about how credit scores work, check out these related posts from OppLoans:

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Can You Take out a Home Equity Loan if You Have Bad Credit?

Even if you have a bad credit score, you stand a much better chance of getting approved for a home equity loan—but you’ll put your home at risk.

When you have a bad credit score, your borrowing options are pretty limited. If you have an unexpected expense pop up—and you don’t have an emergency fund to cover it—you’re not going to be able to take out a personal loan from a bank or take out a credit card to cover the cost.

In many cases, the only loans you’ll qualify for are bad credit loans and no credit check loans. And while the right bad credit installment loan can make for a great financial solution in times of crisis, settling for something like a no credit check title loan and putting your vehicle at risk (all for an APR of 300%) is not a good idea.

But if you own your home, you might have another option available to you. That’s right, you could possibly qualify for a home equity loan or line of credit–even if your credit is poor. And while your lousy credit score will still raise the total cost of these home equity products, the overall price tag will be way less than you would pay for a payday loan. Here’s what you need to know.


What is a home equity loan?

So you probably know what a home mortgage is: It’s a loan that you take out to purchase a house or condo that uses said house or condo as collateral. Well, home equity loans are similar to mortgages. They are also loans that are secured by the value of your home.

The difference between home equity loans and mortgages is that home equity loans are secured by the “equity” that you have in your home. And what’s equity? It’s the value of your home above and beyond what you still owe on your mortgage.

Let’s say that you bought a home for $300,000, and, after a couple of years, you still have $250,000 left on your mortgage. The amount of equity that you now own in your home is $50,000, and you own 20 percent of your home in total. The other 80 percent is technically owned by the bank until your mortgage is paid off entirely.

With a home equity loan, you could (in theory) borrow up to $50,000 against that equity. Of course, a lender will almost certainly not approve you for that full amount. In fact, they very rarely (if ever) lend more than 80 percent of a home’s equity value. With $50,000 in equity, that would mean a max loan amount of $40,000.

You could also try borrowing a home equity line of credit (HELOC) instead of a home equity loan. Unlike a loan, which gives you all your money at once, a line of credit lets you withdraw funds as you need—similar to a credit card. With a HELOC, you’ll only owe interest on the money you withdraw.

Taking out a home equity loan with bad credit.

Folks with bad credit and who need a loan are going to have trouble getting an unsecured personal loan from a traditional lender. That’s because your credit score is an incredibly important indicator as to whether or not you’re likely to repay. A poor score tells traditional lenders that you pose much too high a risk to be worth lending to.

Luckily, with secured loans, there’s collateral involved to reduce that risk. If you can’t repay, the lender can seize your collateral and sell it in order to make up their losses. Granted, this means the stake for taking out a secured loan—like an auto loan, mortgage, or home equity loan—are much higher. But it also means that you are more likely to be approved for one.

However, just because you can get approved for a home equity loan with bad credit doesn’t mean there aren’t drawbacks. For one, you are still less likely to be approved for a home equity loan or line of credit than you would be if you had a good score. Second, you’ll likely have to settle for a smaller loan amount and a higher interest rate plus possibly some additional fees.

No loan is ever without risk. Even an interest-free loan from a friend or family member can come with dire social consequences if you don’t pay it back. And while a home equity loan might be a lot easier to repay than a high-interest title loan, it still comes with the risk of losing your house if you go into default. It’s not a decision to be made lightly.

5 questions to ask yourself before borrowing.

If you have bad credit, you should consider all your options before taking out a home equity loan. Here are five important questions you should ask yourself:

  1. Do I need this money right now? If you’re considering this loan to pay for something that’s more of a “want” than a “need,” then you shouldn’t apply for it. And if you’re using it to cover an emergency expense, take a look at all your repayment options. Maybe this is a charge that you can pay off in installments instead of borrowing money to pay it all upfront.
  2. Can I pay for this some other way? One of the building blocks of responsible personal finance is starting (and maintaining) a well-stocked emergency fund. Maybe, instead of borrowing money, you can dip into that fund and save yourself all the money you’d be putting towards fees and interest!
  3. How much do I need and how much can I afford? When you have a credit card, there’s little harm in agreeing to raise your total credit limit. (In fact, your score could benefit!) With a loan, however, you don’t want to borrow any more than you need. And you’ll also want to consider how the size of your loan will affect the size of your payments. You don’t want to end up paying more than your budget can handle.
  4. What’s the best deal I can find? Don’t just apply for the first home equity loan you see. Do your research. Ask for quotes and gather offers from all the different lenders you can find. Find reviews of them and check out their BBB pages to see how other customers have liked dealing with them. Basically, find the best loan—and lender—that you can.
  5. What can I do to improve my application? Go to www.AnnualCreditReport.com and request a free copy of your credit report from one of the three major credit bureaus. Read your report to see why your credit is bad and what you can do to improve it. And take a look at the rest of your financials, as well, to see where you can do better. The more attractive you seem to a lender, the more you’ll be able to borrow, and the less you’ll have to pay.

Walking around with a bad credit score will completely shut you out from a lot of traditional loans, but not from a home equity loan or line of credit. The question you should be asking yourself isn’t whether you can get the loan, but whether you should.

To learn more about managing your finances when you have bad credit, check out these related posts from OppLoans:

What else do you want to know about borrowing money with bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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Is Your Bad Credit Loan Amortized? If It’s Not, Here’s Why It Should Be

If you think all bad credit loans are the same, you are sorely mistaken. Non-amortized loans can easily trap borrowers in a dangerous cycle of debt.

Oftentimes, when people need a bad credit loan, it’s because they’re in the midst of a financial emergency. A family member has ended up in the E.R. or their car has suddenly died and they need to get it fixed pronto.

Whatever the reason, it’s not a situation that lends itself to careful shopping around. When the pressure’s on, folks are much more likely to pick the first loan they see and get on with it.

As you might have guessed, this kind of slap-dash decision-making can leave you with brand new financial headaches to deal with. If you have bad credit, choosing the wrong bad credit or no credit check loan can end up trapping you in a recurring cycle of debt.

There are many things to consider when choosing a loan for bad credit, but here’s why amortizing interest should be near the top of your wish-list.


What is amortization?

Anyone’s who’s learned how to drive (or taught someone else) has had to deal with the fact that some words—like “right,” for instance—can have different meanings depending on how they’re used. And the same is true for the term “amortization.” Depending on the context, it can mean some very different things.

One of these definitions has to do with how assets are valued, primarily for tax purposes. It’s slightly complicated and has very little to do with regular ol’ personal finance. That’s why we’re not going to talk about it here.

The other primary definition of amortization has to do with the way that loans are repaid. That’s the thing we’re interested in. Amortizing loans are paid off in a series of regular installments, with each installment going towards both the principal loan amount and the interest.

Early on in the loan, the majority of each payment goes towards the interest, while only a small amount goes towards the principal. But with every payment that’s made, this ratio shifts slightly in the other direction, until the last few payments on the loan are almost entirely paying down the principal. This process all unfolds according to a timetable called an  “amortization schedule.”

The interest for these loans also accumulates over time, so the smaller your principal, the less money in interest it accrues. At the beginning of the loan term, the principal is racking up a fair amount of interest. By the end, however, it isn’t racking up much interest at all.

This all might seem rather technical, but when you’re dealing with bad credit loans—where even the more affordable products come with much higher interest rates than regular personal loans—the difference between amortizing and non-amortizing loans can be huge.

Short-term vs. long-term loans.

Bad credit loans come in two distinct flavors: short-term and long-term. Short-term loans have payment terms that average around two weeks to a month and are structured to be paid back in a single lump sum. Common types of short-term bad credit loans include payday loans, cash advances, and title loans.

Long-term bad credit loans, on the other hand, generally come with payment terms anywhere between six months and a few years. These are generally referred to as installment loans, and their payment structures are almost indistinct from regular personal loans and auto loans.

Because short-term bad credit loans are paid back all at once, they are not amortizing. They do not accrue interest over time and that lone payment pays back everything, both the principal and the interest. Charging interest as essentially a flat fee means that paying back these loans early won’t save you any money.

On the other hand, paying off a bad credit installment loan early will save you money—so long as it doesn’t carry a prepayment penalty. The less time your loan principal has to accrue interest, the less money you will end up paying overall.

But being able to pay off any loan early is a best-case scenario, and it’s not wise to choose a loan based solely off of what can happen if everything goes right. Instead, you should look at what happens if you pay the loan back as scheduled. And when you do that, amortizing installment loans still carry a clear advantage over their short-term cousins.

Avoiding the payday cycle of debt.

With short-term payday, cash advance, and title loans, the cost of the loan can be minimized if it’s paid off on time. A 15 percent interest charge on a two-week loan might work out to an APR of almost 400 percent, but when paid off on two weeks, it’s still only $15 per $100 borrowed.

The problem is that many bad credit borrowers aren’t able to pay these loans off on time. Instead, they are either forced to reborrow their loan—meaning that they pay the original loan off and then immediately borrow a new one—or they have to roll it over, which is possibly worse.

Rolling over a loan means getting an extension on the due date in return for being charged additional interest. Oftentimes, the borrower will also be asked to pay the interest owed on the original loan term in order to secure the extension and then owes an entirely new round of interest on a new loan term. Basically, rolling a loan over once doubles your interest rate.

This whole process, wherein the borrower keeps taking out new loans and only paying off the interest, is referred to as a cycle of debt. Since none of their payments are going towards the principal, they’re not actually making progress towards getting out of debt, no matter how much money they pay.

According to a study from the Consumer Financial Protection Bureau (CFPB), the average payday loan customer takes out 10 loans annually and spends almost 200 days every year in debt.

This is exactly the sort of situation that an amortizing loan is constructed to avoid. So long as you make your scheduled payments, paying off the loan principal takes care of itself. Even if you refinance the loan and extend your repayment term, those new payments will also follow an amortization schedule.

No loan is going to be perfect, especially when you have bad credit, and there are plenty of things you should look for in a loan and a lender before signing any loan agreements. But when you take the financial long view—instead of just focusing on your immediate cash needs—you’ll see that choosing an amortizing installment loan is a no-brainer.

To learn more about managing your finances when you have bad credit, check out these related posts from OppLoans:

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