If you have a bad credit and don’t want to take away your poor credit personal loan, there are a few ways to get cash. There are low-cost alternatives in almost every scenario, and many are easier to qualify than traditional personal loans.
For example, it may be better to use a credit card, ask friends and family for help, or tap on funds with 401(k). These alternatives may require a little more legwork and slightly slower funding time to access, but interest savings are worth it.
8 Personal Loan Alternatives for Defective Credit Borrowers
Having less credit than a star doesn’t mean you’re stuck with a high credit loan rate. There are loan alternatives for bad creditors with low cost, and in some cases there are similar funding timelines.
Alternatives at a glance
1. Use a credit card
Credit cards are suitable for those who need to cover small expenses and are disciplined enough to spend only what they can afford to pay it all off each month.
Credit cards for bad credit may give you the funds you need to have in a tough place. The fees are much lower than payday or car title loans, but they may be similar to the rates on a personal loan for a bad credit person.
Credit cards are more flexible than installment loans in two ways. First, instead of borrowing in one lump sum, you can only use the amount you need.
Second, when using an installment loan, you will need to make a fixed monthly payment to both interest and the principal. Using a credit card allows you to make a minimum payment for the amount you borrow until you have the cash to pay back your balance.
Note that creating a habit of paying only the minimum amount can speed up interest construction, so this can be avoided if possible. If you are able to repay your monthly balance, you may be able to avoid paying full interest with your credit card.
2. Consider a Peer-to-Peer (P2P) loan
P2P loans are great for those who want to get an installment loan but don’t qualify for traditional lenders.
Getting a loan from a bank or credit union can be challenging if you have a bad credit and do not meet the requirements of that particular lender. Peer-to-peer lenders will match you with loans funded by a group of investors. P2P loans are more likely to be approved than traditional loans. Investors may be more willing to share the risks of lending with low credit applicants.
The average personal loan requires a credit score in the mid-600s, but peer-to-peer loans may offer loans up to 600. Funding times are often similar to those offered by individual loan lenders. Like any other bad credit loan, your credit score determines how low your fees and fees are.
More information: Check out our peer-to-peer lender bank rate reviews, Prosper
3. Use Home Equity Loan or HELOC
Home equity options are better for people with a substantial amount of home equity, given that they instruct you how much you can borrow.
If you own a home with sufficient stock, you can tap on that stock on your Home Equity Loan or Home Equity Credit (HELOC). Typically, you need a credit score of at least 620 to qualify, but the fees are significantly lower than credit cards and payday loans.
Home equity loans work like personal loans, but they have a much longer repayment period. You will be paid in one lump sum and will make a fixed payment over a set period, typically between 5 and 30 years.
HELOC behaves like a credit card and allows you to access funds when needed during a “lottery period” that usually lasts 10 to 15 years. During this period, you can borrow what you need if you need it, and you will have a repayment period of approximately 20 years.
Both types of loans are considered second mortgages. This means you have two mortgage payments per month. And you have to put your home as collateral. This makes it easier to get approved at an affordable price, but it also means that the lender can grab your home if payment fails.
4. Consider buying now and pay later (BNPL) loan
BNPL loans want to be affordable for consumers who want to split their purchases into smaller payments and avoid the sudden interest associated with credit cards.
Buy Now, Pay Last Loan is a short-term repayment plan that allows you to split your purchase into four monthly installments. Most online retailers offer BNPL options. Numerous mobile and desktop apps host thousands of retailers offering funding options.
Most BNPL apps and services do not require credit checks, so those without credit history or very low scores are still eligible. Please note that some of these apps have very high interest rates if you miss a payment. Plus, the convenience of BNPL loans makes it easy to spend beyond your budget.
Only those who are well-handling their finances and spending habits should consider consuming multiple products at once. It can be difficult to manage multiple debt streams. If the company reports to three credit bureaus, if you missed your payment, you could end up with credit damage.
5. Request a payment plan
Repayment plans are perfect for those who are struggling to manage their utility, medical bills, and tax bills and seek affordable monthly payments.
Depending on the cost, you can request a payment plan from your payment plan rather than underwriting more debt. You may be eligible for a low or no profit payment plan for payment:
- Utility invoice.
- Medical expenses.
- Dental work.
- tax.
The utility company may extend the due date or allow payments over several months. Ask about the “Level Pay” option, which offers predictable payments for electricity, water or gas prices. This helps avoid high bills during peak use seasons like winter and summer.
Medical and dental clinics often offer options to spread payments over several months. If you are late with federal, state or property taxes, contact your local tax authorities to discuss your payment options.
6. Borrow from friends and family
Loans from friends and family are better for those with support networks and better for those who are willing to be interested in their funds or are confident in their ability to pay off their funds on time.
Financial challenges and road bumps will affect many people, and friends and family will understand your challenges the most. Still, asking your loved one to lend you money can be scary – if you can’t pay it back, there is always a chance that it will put a strain on your relationship.
Be open and communicate with the people who are lending you money. Set up payment agreements to maintain liability for monthly payments.
When you are struggling financially, it is important to know that you are not alone. Even if your family or friends don’t lend you the cash you need directly, they may be able to support you in other ways.
If you need to take on a temporary second job or side hustle, seek childcare help. Alternatively, they can make extra meals for you, so you can reduce your grocery bills in between payrolls. Such help may be sufficient to go through the rough money patch.
7. Borrowing for a retirement account
401(k) loans are great for those who want to run out of traditional financing options and access high-interest short-term loans.
If you have money transferred to a retirement account like 401(k) through your employer, you can borrow against a portion of the value. With a 401(k) loan, you don’t need to qualify on a credit basis, and it’s usually very low.
In most cases, you will need to pay off your loan within five years, and payments will be deducted from each salary until you are paid in full. If you leave your job before your balance is repaid, you can pay taxes and fines. You may also not borrow more than $50,000 or 50% of your vested account balance.
8. Think about refinancing cash out at your home
If you have a substantial amount of home equity and want to extract cash differences while taking advantage of better rates, a cash-out refinance is ideal.
To refinance cash out, you will borrow more than you currently owe and pocket cash differences. Mortgage fees tend to be much lower than other types of bad credit loans. As long as you have at least 20% capital in your home, you may even qualify for a FHA cash out refinance with a low credit score of 500.
Closure costs are more expensive as you rent more. You will need to go through an approval process that could take more than a month. Like Home Equity Loans and Helock, your home is a collateral for this type of refinance.
Conclusion
It is best to consider alternatives to bad credit loans to avoid paying exorbitant interest rates and closing costs. If you don’t need the funds urgently, take your time to weigh the advantages, disadvantages and alternatives of each type of bad credit loan.
No matter what your choice, you can take steps to improve your credits during the process. This will help you qualify for cheap borrowing options later. This will help you qualify for a good credit loan fee later.
