If you have bad credit, or no credit history, it may seem that every door is closing in your face. You may be tempted to turn to payday loans or depression to overcome these disappointments. But, there is a way to radically change your reality.
Good Credit Does Open More Doors
It is true, having a good or excellent credit score will open many more doors for you. You can obtain financing, at the most favorable terms and rates. Whether you are applying for a secured or unsecured loan from a bank, a credit card, auto loan, mortgage or even, insurance or signing a rental lease, your credit score is going to be front and center in the process of evaluating your credit worthiness. Therefore, the first step to changing your reality is to repair your credit score. You can find some strategies for how to do this here.
In the Meantime, What do you do if you have Bad Credit? You Need a Loan Now
If you have credit cards that have not been maxed out yet, it might be tempting to go ahead and use them. Bad idea. Maxing out on your credit cards negatively impacts your credit score. If you can only pay the minimum due on all your credit card accounts, you will do nothing to improve your credit score. And you will increase your financial stress. The situation is even worse if you cannot make even the minimum payment, or you miss payments. The best advice is to pay off your credit card debt and ration future charges. Keep it to what you can afford to pay in full each month. If you need help with this, consider a credit card debt consolidation loan.
A Payday Loan is a Bad Idea
Turning to a payday loan is also a bad idea and here is why. A payday loan may seem easy and fast, especially if you have bad credit. However, this loan is given on the understanding that it will be repaid in full from your upcoming paycheck. The application requires only proof of employment and a statement from your bank. Then, you write a post-dated check for the amount of the loan plus fees. You now have two options: you can return to the payday lender and repay the loan, or the lender can deposit your check.
Doesn’t sound so bad, right? First of all, the fees and interest rates on a payday loan are astronomical. And, since the approval process is so easy, payday lenders tend to make loans to the very people least able to afford one. If you miss your payment, and do not have the funds to cover the post-dated checks, you will incur bank fees for bounced checks, possibly other penalties and actions from your bank, AND you still owe the payday lender. A payday loan can trap you in an endless cycle of borrowing to pay back…not the lane to financial freedom.
A crackdown on payday lenders has resulted in a shrinkage of the market. However, as is the case with everything, payday lenders have evolved. Their new offering is the payday installment loan. Also not what you want. The payday installment loan follows the same process vis a vis checking your credentials, but rather than a lump sum payment, you can pay in installments. But the APR is still painful. An APR of 268% is definitely an improvement over the 800% assessed on a regular payday loan. But let’s say you take out a $1,000 loan. You will pay interest of $1,942 at an APR of 268%!
So What are Your Options?
If you have bad credit or are new in the adult world, and have not yet established a credit history, the best way to go is with a p2p loan. The peer-to-peer or marketplace lending platform, was created for consumers with poor credit—credit scores below the threshold required for an affordable bank loan. The whole idea behind the paradigm of peer-to-peer lending was to help consumers obtain the financing they need, in a timely fashion, with minimum disruption so they can get on with their life.
You can do quite a few things with a peer-to-peer loan. A p2p loan can give you the down payment you need to purchase that car. It is much better to go into the auto buying negotiation empowered with cash on hand. A p2p loan can help you pay for those uncovered medical expenses, such as fertility treatments, laser vision correction, cosmetic surgeries, and other vital yet uncovered medical procedures. Peer-to-peer loans are great for covering wedding expenses, especially when most vendors want to be paid ahead of the event and the money to cover the wedding has not yet arrived. Marketplace lending loans are also good for relocation costs, like when you have a much better job waiting for you across town or across the country.
Even if you have less than stellar credit, the peer-to-peer door is open for you. The process is entirely online, easy to navigate and you receive a speedy reply. Peer to peer lenders utilize a different method to determine whether you can repay the loan. Unlike the banks, who look only at your credit score, p2p lenders have created their own scientific algorithms that assess a wide variety of factors in your life, giving them a much better picture of your credit worthiness. Peer-to-peer lenders want to help you.
Bottom line: bad credit or no credit can throw a few challenges your way, but it is not the end of the road. You have healthy options. Start today.