Emergencies don’t knock on the door and neither do they announce their coming. The best you can do is to prepare for them but even then, the amount you set aside may not be enough. When it comes to this, there’s only one option left. To borrow.
You need quick cash and if you have bad credit, one option will come to mind and that is a payday loan. Yes, the interest rate may be outrageous for a small amount but you’re in a cash crunch and anything goes, right?
That’s your thinking and its wrong. This option will only drain your finances and leave you in a worse financial situation than when you started. “What should I do then, avoid payday lenders?”
Yes, but then again payday loans aren’t the only sources of credit that’ll make your already bad situation even worse. Take a look at some of them.
Forget about payday loan lenders asking for your checking account. Pawnshops are even worse because apart from being a short-term loan with APRs going as high as 300%, you’ll still need to deposit some form of collateral.
That’s not all because you must repay the loan within a short period, which is one of the reasons why many borrowers fail to meet the deadline. This gives pawnshop owners the go-ahead to sell your valuable items for a handsome profit.
In fact, why put up your valuable items as collateral when you can sell them to get the much-needed cash? Consider gathering all the items you no longer need and hold an old-school garage sale. You’ll be surprised just how much you’ll collect at the end of the sale.
Are utility bills even a loan? Yes, they are. Here’s why. To get the services you need, you must pay the utility company on time. Do this and you’ll be in their good books. No fees or interest payments. However, if you skip a single payment, the charges can pile up quite fast to become the worst form of credit.
Why? First, you’ll need to pay a late payment fee that ranges from $30 to $50. Further delay in payment will result in service disconnection and this will cost you an additional $20. Say you finally get the money to pay the bill, you’ll need to pay a reconnection fee that could go up to $50.
In short, you may end up paying $120 in fees for a $100 bill. Therefore, the next time you think of skipping a bill payment, think twice of the consequences.
Car Title Loans
This is a secured loan because it uses your car’s value as collateral so it can somehow manage to get you bad credit loans guaranteed approval $5000, as lenders are in secured position. Therefore, you’ll have to deposit the car’s title with the lender, but you’ll still use the car as usual. However, if you fail to make the loan payments, the lender will move in to repossess the car.
This means you risk losing your car even for a single missed payment. What’s more, these loans come with high fees and interest rates similar to payday loans. For an average car title loan, expect to pay up to 25% in interest per month, translating to about 300% APR.
Credit Card Cash Advance
This method works the same way as a debit card does. All you need is your card and pin number and you’ll have the cash. While credit card cash advances don’t charge interest rates as high as car title loan and payday lenders, they aren’t cheap.
You can easily end up paying APRs a high as 30%, but First Premier Bank has a credit card that charges an astonishing 79.9% APR. Apart from the interest rates, you’ll need to pay the high fees, which ultimately makes credit card cash advances an expensive option, especially when borrowing small amounts.
Let’s break it down using a $100 cash advance. The typical fee for this amount is $15 minus the ATM fees of about $5 and interest. If you compare this to a payday loan of a similar amount, you’ll find that it’s more expensive.
Also, there’s a bigger danger in borrowing from your credit card in the form of freedom to borrow any amount as long as you don’t exceed the set limit. While this sounds great, you’ll be required to pay a certain monthly minimum, which sets you off in a financial tailspin that may take years to recover from.
Bounced Checks and Late Payments
Credit card debt falls under the revolving debt category and taking a steady approach when paying down this debt is not the best idea. While credit cards rank as one of the cheapest and most convenient sources of credit, making a late payment of skipping it altogether will be detrimental to your finances.
For instance, you’ll pay up to $37 as late payment fees and an extra $37 for returned payments, independent of the amount in question. In fact, you could owe a mere $5 but end up paying up to $74 in late payment fees.
While all these credit sources may appeal to you because of their convenience and fast access, the effects on your pocket will be irreversible. The next best option is to seek a personal loan. One that is extended to borrowers with bad or poor credit.
Several reasons make a personal loan a viable option. First, there’s no need to put up collateral to secure the loan. Also, they fall under non-revolving debt, which means they have a fixed repayment period, making it easy for you to factor it in your budget.
The other advantage is you’ll benefit from positive reviews from the lender if you make on-time payments. However, you’ll need to confirm with your lender whether they report good behavior to the leading credit bureaus (TransUnion, Experian, and Equifax). If they do, it’ll be a great way to boost your score, which will allow you to qualify for better terms in the future.