Payday Loans for Bad Credit
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Financial institutions, along with everyone in the financial world, keep stressing about the importance of a good credit score. While this may seem feasible and even easy on paper, the situations we face in real life are less than ideal to achieve decent credit history.
Then again, there are times we are forced to seek short term financial solutions that come in the form of loans. Among the personal type of loans, payday loans are increasingly finding their way to many Americans.
The reasons range from their accessibility to a wide variety of options. The flexibility of the repayment term is also one of the reasons why a lot of employed and unemployed individuals are finding solutions in payday loans.
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In the realm of loans, everything seems to work in favor of those who maintain a good credit score, whether it is the low-interest rates, the speed of loan application approval, and so on.
But what if you don’t have a good credit score? Are you still eligible for a payday loan? We find out in this post.
What is payday loan bad credit?
Payday loan bad credit is a short term loan that is extended to borrowers who do not have good credit. They are also called check advance loans or cash advance loans.
The portion of the borrower’s next paycheck usually forms the principal of this type of loan. Up to 70% of payday loans are based on how much is earned by the borrower. However, some lenders also approve loans for those who are unemployed.
Different money lenders and other financial institutions have different rules and regulations that cover the loan amount, interest rates, and loan approval. However, most of the payday loans follow the policy of the next business day deposit.
To get a payday loan bad credit, you need to write a check, the amount of which includes the borrowed amount, as well as the finance charge. Some lenders accept electronic access to your bank account as well.
What are the requirements for payday loan with bad credit?
If you have a credit score that is less than stellar, it is a legit concern to ask if you can submit a loan application. But because there are a large number of financial institutions that are competing to take care of consumers, there are several ways you can apply for a payday loan with bad credit.
However, there are some requirements that you need to fulfill to secure the loan. These are:
- You should be no less than 18 years old
- An identity card
- A bank account that is active
- A monthly income that is no less than $800
- Documents that show your proof of income
However, these requirements can vary from one financial institution to the other. So make sure to ask or make inquiries before you submit the loan application.
Things consider before applying for a payday loan with bad credit.
When you consider the opportune chance of getting a payday loan with bad credit, it can be tempting to secure them as much as you can. However, as is the norm with all short term loans, payday loans do not come cheap. It can hold you in a vicious cycle of securing and repaying the loan.
To avoid this, here are the top things to consider before applying for a payday loan with bad credit:
- Borrow the amount that you need – Easy access to instant money is a seduction only a few of us can resist. But know that you will be paying higher interest rates for longer if you take more money than you need.
- Use the loan for its intended purpose – Personal loans are very versatile. So you might have the urge to use it in all manners once you get the money in your hands. But the financially wise will only use the payday loan for the very reason they applied for it. You have to understand that a payday loan is not the ultimate solution to all your debt problems.
- Consider your repayment strategy – If you are absolutely strapped for money, then you will have a lot of trouble repaying the loan. How much can you pay each month for the loan? Is the repayment term stated by the lender a good time for you to meet the requirement?If you think you will not be able to meet the repayment terms, ask for an increase in the repayment term. You will have to pay interest rates that are a little higher, but it is better than getting charged for repayment fees. Or worse, have the loan go into a collection, which can be very bad for your credit scores.
- The source of payment should be clear – Many people assume that the worst is over as soon as the loans get approved. But there are many areas you still need to cover until you can feel safe.One important area that most borrowers fail to cover is the source of loan repayment. A lot of money lenders start deducting the money from your checking account. This can derail your monthly bill payments. So you need to make sure that you are putting down the right bank account details during loan application.
- Understand the terms and conditions – Everyone reads the terms and conditions of the loan before and during application. But not many of us make it a point to understand them. Reading and understanding the terms and conditions are vital as they can save you from potential pitfalls and eventually save you a lot of money.
Benefits of payday loans.
Payday loan credit has several unbeatable benefits. This is the reason why they are extremely popular. These benefits include:
Most lenders who give out payday loans do not have stringent requirements. They do have some requirements but they are basic documents that are available with almost every adult. In most cases, you do not need a good credit score to secure the loan.
This is another benefit of a payday loan bad credit. Since it is not earmarked, you can pretty much use the loan for any purpose, including medical emergencies, wedding expenses, and many more.
Payday loans are one of the most quickly approved loans anywhere. Most of the lenders follow a next business day deposit practice, which can be a huge help to those in dire emergencies.
Most payday loans come with fixed payment duration. Since the rules are pretty much written in stone, you have little choice but to work hard and repay the loan in the given time.
Disadvantages of payday loans.
Despite its fantastic benefits, payday loans are not without their disadvantages. These include:
Similar to all short term loans, payday loans often come with higher interest rates. Of course, it is also affected by your credit score history, the length of the repayment as well as whether or the loan is secured or unsecured.
Fixed payment terms
Payday loans typically require you to make a payment every month. And there is no compromise in the amount or the time. Failure to meet these requirements can result in you getting penalized.
Short term solution
While this may seem like the instant solution to an emergency; that is about it. Do not expect payday loans to cover your needs over an extended period.
Tips on how to improve your bad credit.
If you have been struggling to improve your credit score, here are some practical and effective tips.
- Pay your credit card balance on time – Up to 35% of your credit score depends on your payment history. There is a big difference in the time frame between your credit card’s due date and the balance that is reported by credit card companies. This is the reason why your credit score doesn’t improve even if you clear all the payments on your credit card every month.The best strategy is to find out the date when your credit card company makes their report to the National Credit Bureaus and make your payments one day before that.
- Reconsider your credit mix – Diversifying your credit card mix is a subtle way to flex your financial management skills. If you are able to show that you have sufficient skills in managing multiple credit cards, it can impress a lot of lenders and improve your credit score as well.However, if you do plan to apply for multiple credit cards, make sure to keep the balance in one of the cards and the rest with a zero balance. It can also look fishy if you try to build an account rapidly within a short period, so be wise.
- Consolidate your debt balances – Consolidating all your balances into a single card is also a smart move when you want to improve your credit score. Along with this, focus on clearing all your smaller debts so you can bring them under the 30% range.
- Make substantive payments on your credit cards – When you keep your debt range below 30%, it can boost your credit score in a significant way. It is because credit card companies constantly keep evaluating the available credit on your card with the debts you owe.
Alternatives to payday loan bad credit.
Despite all your efforts, there can be times when it can be impossible to secure a payday loan. In such cases, here are the top alternatives to payday loan bad credit.
- Employer Advance – Ask for an advance from your monthly salary
- Personal loan – Local credit unions, as well as lenders, lend money even with those with bad credit.
- Credit card – Consider applying for a new one if you’ve maxed out the ones you have.
Summary – payday loan bad credit.
The magnitude of maintaining good credit scores can deeply affect how you view your financial status. But fortunately, lenders and financial institutions are more than willing to give us a helping hand. And for now, that is enough to make a difference.