There are few things more frustrating than facing a financial emergency and not having the money to pay for it. If you have bad credit, your situation can seem dire because it’s a lot harder to get the money you need. Once you find yourself in this situation once, it tends to happen again and again.
Bad credit usually comes from making financial mistakes in the past. Making your payments late or ignoring creditors altogether can be particularly damaging. However, some people have low credit scores because they simply haven’t needed to use credit. This means that lenders aren’t sure if you’ll pay them back on time, so they might not want to take the risk.
While it might be hard to get the money you need when you have bad credit, you may have some options. Before getting a emergency loan with bad credit, carefully look into these options and make sure you understand the potential risks.
No-Credit Check Loans
Most people with bad credit start looking for places that will give them a loan without doing a credit check. In general, the types of places that do this give “payday loans,” which are loans that are immediately paid off on the next pay day. At these places, you typically have to prove that you have a job by showing recent pay stubs, then you write a check for the amount of the loan plus the company’s fee, and the company cashes the check on your pay day. Occasionally, you may be able to find a lender that gives you more money as an installment loan without checking your credit, but these are much more difficult to find and end up costing you a lot more.
The problem with these types of places is that the interest on the loans is incredibly high. For instance, you might write the company a check for $300, but only receive $250 in cash after paying the company’s $50 fee. With an installment loan, the fee might be more than double the amount you actually receive. Since the monthly payments are reasonable, it sounds like a good deal, but when you look at the total paid over the lifetime of the loan, you can see how you’re paying too much.
The “Emergency” Loan Trap
One of the biggest problems that people face when taking out these emergency loans is getting caught in a borrowing trap. You’re essentially throwing money away by paying high interest rates and fees, then you don’t have enough money to make ends meet before the next pay day, so you start looking for emergency money again. The cycle repeats endlessly until you find a way to break out.
Do You Really Need the Money?
Think hard about whether or not you really need to borrow money. Many times, a situation seems dire, but you quickly find that you can get by until you have the money to pay for what you need. For instance, if the kids break your favorite chair or the TV finally kicks the bucket, you’d probably be better off saving little by little until you can afford to make those purchases. Use a cost calculator to see how much you’ll really pay when you borrow money at high interest rates and waiting will seem a lot more attractive.
Of course, sometimes you have no choice. If you can’t pay for car repairs, you won’t be able to use your car to get to work. If you don’t pay your utility bills, they’ll shut off your electricity, heat or water. Before you turn to the types of predatory lenders that typically offer emergency loans without a credit check, look for a few alternatives.
For instance, many credit unions strive to work with local people who need help improving their credit. They may be able to offer you a loan with a much lower interest rate. To get these, you typically have to be a member of the credit union, but membership is often only a matter of opening an account with as little as $5.
If the money you need is for something tangible, such as a new furnace in the dead of winter, you may be able to arrange payments with the store selling the item. Store credit cards typically have more lenient cutoffs when it comes to offering credit. Of course, you also need to pay attention to interest rates, as they can be high when you’re making a purchase at a “buy here/pay here” type of place.
Sometimes all you really need is a bit of help to get back on your feet and into better financial situation. Local charitable organizations can make that possible. A week’s worth of groceries from a food bank can help you get by until your next pay check or allow you to use the money you’d spend on groceries to pay to fix your car. Many cities also offer government help paying utilities to those who are struggling to make ends meet. It’s worth looking for programs like this in your area.
Building Better Credit
No one wants to be stuck with a financial emergency. Building your credit helps you to feel more secure because it will be easier to borrow money when you need it the next time. Focus your efforts on paying off debts, and always make sure to pay your bills on time, even if you’re just making the minimum payment. Credit scores don’t change overnight, but every little positive action you take can make a big difference.
Having poor credit makes your life really difficult, especially when it comes to borrowing money. However, you have to learn to get smarter about your finances. If you can avoid taking out an emergency loan, you’ll probably be better off in the long run.