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Payday Loans for Bad Credit
If you have a bad or less-than-stellar credit score — a score of 350 to 579 — as defined by FICO, you’ll have a tough time qualifying for a personal loan unless you’re applying with a co-signer. While it’s understandable for you to consider no credit check loans, all reputable and accredited lenders must perform a credit check before approving you for any line of credit.
Luckily, bad credit shouldn’t affect your application for payday loans because some specialized online lenders are willing to spot you some extra money until your next paycheck, irrespective of your credit rating. Note that while payday loans allow for short-term borrowing in emergency situations, this often comes at a high interest rate along with other fees that could sink you into more financial turmoil than you’re already in. Therefore, it’s important to understand what payday loans for bad credit are and what impact they could have on your finances down the road.
Read through our guide to get the inside scoop into online loans for bad credit.
What Does It Mean To Have a Bad Credit Score?
Credit score is a representation of your credit worthiness and trustworthiness as a borrower. Lenders use this three-digit number to assess your risk profile before approving your loan application. But what exactly does it mean when you have a bad credit score? With a bad credit score, you’ll typically fall into a credit range that lenders refer to as subprime. While this may vary based on who is judging your loan application, a bad credit score may be anything below 670.
Credit-scoring companies use various models to calculate your credit score, with the most common ones being FICO and VantageScore.
The FICO scoring model has credit scores ranging from 300 to 850 as follows: 300 – 579 is poor, 580 – 669 is fair, 670 – 739 is good, 740 – 799 is very good, and 800 – 850 is exceptional. The VantageScore model, developed by the three main credit reporting bureaus uses the scale ranging from 300 to 850 but the definitions associated with each score differ from how they are defined in the FICO model. The VantageScore model ranges are as follows: 300 – 499 is very poor, 500 – 600 is poor, 601 – 660 is fair, 661 – 780 is good, and 781 – 850 is excellent.
Borrowers with a bad credit score are considered a credit risk by lenders and this could affect your lending options and financial goals with these roadblocks:
Rejection for lines of credit
Having bad credit can put you in line for rejection of loan applications like personal loans, auto loans, mortgages, credit cards, and private student loans.
Difficult rental approvals
Most landlords will reject your tenancy application if you have a bad credit score since this is synonymous with falling behind on payments.
Mandatory security deposits
Utilities like electricity, water, and gas may ask you to make a security deposit when moving home if you have a poor credit score.
Trouble securing a cell phone contract
Wireless providers may check your credit before onboarding you as a customer although some carriers will provide prepaid plans that don’t need a credit check.
Higher insurance premiums
Besides your driving history, auto insurers will often pull your credit report to assess how likely you are to submit an insurance claim. As a result, your credit history may be factored into the insurance rates you get.
Potential employers may look into your credit file while performing background checks but they need your consent to do so.
Choosing the best Payday Loan for Bad Credit
Although having a bad credit already reduces your lending options, it is equally important that you compare prospective lenders to find the best possible terms for your loan. Here are some important aspects to weigh in on when comparing payday loan lenders.
The APR range
Payday loans, just like other loans, come at a cost that includes an interest rate and other lender-associated fees. The yearly cost of borrowing the loan is expressed as an annual percentage rate (APR). As a result, it’s important that you put more weight on assessing the APR when comparing payday loan lenders since that will help you assess how much you’ll need to pay back. Consider using lender-provided loan calculators since they can help you determine what you can afford and what’s beyond your reach.
The loan amount
Since you’re already looking to cover some financial shortfall, it’s important to assess lenders based on their ability to provide you with enough money to cover your needs. Some lenders will have a set minimum amount you can borrow, and you could find yourself in the pits if you only need less than that. For instance, you could have trouble securing a $2,000 payday loan if your potential lender only offers loan from $5,000 and above. Even so, you may need a lender who can offer a larger loan if you have a larger debt to consolidate.
If you’re applying for a payday loan, chances are that you need the money disbursed into your account within the shortest time possible. Some lenders offer same-day funding while others will promise to deposit the funds into your account the next day. Bear in mind that the approval and funding times are not guaranteed, and this often comes down in part to your banking provider.
The repayment term
Following the annual percentage rate, the repayment term is the next big factor weighing in on how much you end up paying for the loan. You’ll incur the lowest borrowing costs if you choose a short repayment term since you’re essentially paying less interest over the period you owe the money. However, this means that you’ll have larger ongoing installment payments. Choose a lender whose repayment term fits your needs.
Reputation is just as important when choosing a payday lender. Payday lending has often received a bad rap for swindles, so it’s upon you to do your due diligence. Start with customer review websites and look through complaint databases for any information about the business. Choosing a reputable lender can be the difference between remaining afloat and staying in financial distress.
While most payday lenders are associated with brick-and-mortar stores, online loan applications are also making the application process easier for customers. Lenders that allow for online applications will help you check if you pre-qualify for a line of credit without damaging your scores.
Requirements for Getting a Payday Loan with Bad Credit
Payday loans are a form of cash advance that the borrower needs to pay back with their next paycheck. Since they are loans for people with bad credit, a lender already knows that your credit profile isn’t its best shape. As a result, the basic requirements for getting approved for one are proof that you are at least 18 years old, a source of income, an active checking account, and a valid form of identification. While these are the most basic requirements, the evaluation criteria may differ among lenders. The loan approval process is usually fairly straightforward, and you could get approved for the loan on the same day. When the payday loan comes due, you are required to either pay off the loan in person or your lender will make a withdrawal from the checking account you provided.
The loan amount you will receive from a lender will depend on your income and the lender. However, most states still have laws in place to determine the maximum payday loan amount. In some states, borrowers are prohibited from carrying payday loans from different lenders.
How To Qualify For a Payday With Bad Credit
Payday loans are popular for many reasons. Their fast funding times, minimal requirements, convenience, and overall accessibility make them a good option for people who need funds now. But these loans aren’t right for everyone. Nor are they the best — or necessarily only — solution in all cases. That’s why it’s important to make sure this is the best option for you before applying.
Check your credit score
Work on your credit score
Research multiple lenders
Include a co-signer
Include all income sources
Advantages of Getting an Online Loan for Bad Credit
Online loans for bad credit can help get you out of a financially sticky situation. Here are some advantages of bad credit loans.
Easier qualification process
Better than other lending products
Help rebuild your credit profile
Disadvantages of Getting an Online Loan for Bad Credit
Bad credit loans equally come with their fair share of cons. Here are some cons to bear in mind when considering a bad credit loan.
One of the biggest disadvantage of bad credit loans is that they come at a higher cost, in terms of interest rates, fees, and penalties. To a lender, any borrower with a bad credit score presents a huge credit risk. To compensate for the high risk profile presented by the borrower, lenders charge higher interest rates than most traditional loan options. And it doesn’t stop there — bad credit loans also come with high origination fees and delayed payment penalties. While a bad credit loan is meant to get you out of financial turmoil, the high fees could plunge you into further financial distress.
Higher spam risk and predatory lending
If you have a bad credit score, the chances are that you’re already desperate and lenders will likely prey on that. Be careful when approaching bad credit lenders, otherwise you might be land straight into an illegitimate lender. Some lenders may even take it higher with predatory lending practices like excessive hidden fees, a huge balloon payment at the end of the loan term, and coercion into more expensive loan options. Do your research beforehand to avoid falling into the hands of any predatory lenders.
How To Identify Bad Credit Loan Scams
Failing to exercise caution could see you on the receiving end of a bad credit loan scam as fraudulent lenders pounce on your desperation during a financial pitfall. However, there are some easy ways to check whether the lender is legit to avoid getting scammed. Here are some red flags that could indicate a potential bad credit loan scam.
Demanding payment upfront
Endless unsolicited offers
Pressure to act immediately
Their website isn’t secure
The lender is not registered
The Bottom Line
In a world where people with bad credit are increasingly marginalized, payday loans may be a ticket out of financial hardship amid an unimpressive credit score. Quick approvals and easier qualification processes make these loans attractive, but their high fees and interest rates can jeopardize your already precarious financial situation. If you choose to go down this route, be sure to understand your lender’s terms and conditions and be sure to repay the loan no later than its due date. Remember, you could still consider alternative options like borrowing from family or taking a loan against a piece of asset you own.
Will I be approved for a payday loan without a credit check?
There are usually no credit checks associated with payday loans but there is a limit to the amount of money you can borrow.
Can I get a payday loan if I’m self-employed?
While most lenders will likely approve your application if you’re self-employed, be sure to check your lender’s eligibility criteria. Lenders assess your ability to pay back the loan and being self-employed may be enough proof.
How much money can I borrow with bad credit?
Your lender will determine your borrowing limit based on your income and creditworthiness. Larger borrowing limits are left for high-qualified borrowers, so a bad credit score will probably leave you settling for the lower minimum limits.