Best Personal Loans for Bad Credit (Alternatives to Payday Loans)

If you’re living paycheck to paycheck, financial emergencies can feel stressful and overwhelming. For example, when a household appliance breaks or your car needs major repairs, these things have to be dealt with. But these unexpected emergencies can add up to quite a bit of money you don’t have.

If you have bad credit due to the financial mistakes you made in the past, you’re in a tough spot. Lenders aren’t fond of consumers with low credit scores, so you may have difficulty getting approved for a loan. Unfortunately, this causes many people to apply for bad credit loans from predatory payday lenders and ultimately worsens their financial situation.

What are the best personal loans for bad credit?

If you need money to get you through a financial emergency, personal loans are a much better option than payday loans. Here are the six best bad credit personal loans.

What is the difference between a payday loan and an installment loan?

An installment loan is a broad term used to describe several types of loans. Mortgages, auto loans, and personal loans would all be examples of installment loans. You borrow a certain amount of money and pay your lender back in agreed-upon monthly payments. These loans are usually done through a bank, credit union, or online lender.

In comparison, a payday loan is a short-term cash advance usually taken out through a loan agency, though these can also be done online. You’ll usually borrow a smaller amount of money at a high interest rate. You’ll pay this money back from your next paycheck.

Pros and Cons of Payday Loans

Payday loans are easy to obtain, and you can receive the money quickly, which can be tempting if you find yourself in a financial emergency. And these agencies are all over the place, so they are convenient to access.

But payday loans are always the more expensive option because of the exorbitantly high interest rates. And it’s easy to fall into a cyclical pattern of debt because you’re always borrowing from a future paycheck.

The CFPB found that 80% of payday loans are either rolled into another loan or immediately followed by another loan within two weeks. Some payday loan borrowers take out as many as eight to 10 loans a year.

Pros and Cons of Installment Loans

Installment loans are much more predictable than payday loans. They come with a fixed interest rate, and your payments will always be due at the same time each month. And since the loan amount is higher, the repayment terms are much longer.

However, installment loans can come with high interest rates as well, especially if you have a low credit score. And you can end up paying a lot of money in fees if you regularly miss payments.

Can I get an installment loan with poor credit?

Individuals with poor credit find themselves at a disadvantage when they need to borrow money. Lenders weigh your credit history heavily because a low credit score indicates that you’re a riskier investment.

This is a catch-22 scenario many borrowers have found themselves in. But if you find yourself in this situation, know that it is possible to borrow money without resorting to payday loans.

Some reputable lenders are willing to give installment loans to consumers with bad credit. So you can expect to pay more money in interest, and your loan terms will not be as favorable. But it will be nowhere near the 400% interest you could end up paying with a payday loan.

Conclusion

These six lenders are a better option than payday loans, but they still aren’t going to give you the most favorable interest rate. Improving your credit score is the best way to find to qualify for a personal loan with lower interest rates.

Improving your credit score will take time, but there are small steps you can take to get started. Keep track of your bills to ensure you’re making your monthly payments on time. Begin focusing on paying down debt and only apply for new credit as needed.