How to Avoid Scam Loans with a “Less Than Perfect” Credit Score?

ElitePersonalFinance
Last Update: February 5, 2021 Credit Report Loans Scams

In everyone’s life, there comes a bad financial moment. It can be due to some unexpected costs, temporary job loss, or something else. In such moments, people start looking for ways to get some fast cash, including getting loans. But in a hurry, most of you can make big mistakes because there are many scams on the market these days. And if you have less than a perfect score, your situation looks bad.

Unscrupulous lenders target exactly people who need fast money, are with bad credit, and don’t have a lot of knowledge about the loan market. No credit score – no problem, you need fast cash – no problem, you need money in a few minutes – no problem. This is how they work.

Although we can’t get you out of the bad financial situation you are in or boost your credit score in a day, we will work on the third part – giving you knowledge about what to do if you find yourself. And don’t get us wrong. By this, we don’t mean that you have to spend a lot of time reading various materials to find the right offer for you. This article will show exactly where to look for personal loans.

Nowadays, the loan market is totally different than a few years ago. These days, so many legit lenders will give you money very fast, even if your credit score is not perfect. People have to be more careful.

What are Payday Loans and Why They Should be Avoided?

Payday loans are short-term loans, typically of up to $1,000. People are required to pay them very fast in one installment – on the next payday. Typically, this is in two weeks or a month. The APR is insane. It’s about 400% or higher, according to CFPB. CFPB also counted that that per every $100, you will be required to pay $15 within a two-week period. But that is not the main problem with payday loans. If you don’t repay them on time, most of these lenders will offer you to roll over. This means that you will be requested to pay only the interest fee, which doesn’t lower the principal amount. This process continues until you repay it in full, known as the debt cycle. This is exactly what unscrupulous lenders want you to do.

Don’t get payday loans because they are predatory!

In addition, payday loans are illegal in many states. In others, they are highly regulated.

Auto title loans are an almost equally bad deal. The difference is that lenders require you to put your car in collateral.

Auto title loans should be avoided!

Can I Get a Personal Loan on Reliable Rates?

Of course, you can get personal loans, even if you have bad credit. As we have mentioned earlier, the lending market is becoming much more flexible. Lenders compete among themselves to give you a loan faster and on better terms.

Benefits of Personal Loans:

  • The typical APR is 10% to 36%.
  • Amount is $1,000 to $50,000.
  • They are released really fast, in most cases within a day.

Tips to Get Better Loan Terms

  • Shop around

The best way to find the right offer is to apply with many companies. There are many lending companies that work even with people who have less than a perfect score. When you register with more companies, you can compare more offers and pick the best ones available to you. Applying for many loans won’t lower your credit score because they don’t perform a hard inquiry during the application process. Some of them have minimum credit score requirements, and others don’t.

  • Read the fine prints

Read the contract carefully and check for any hidden fees. Carefully check the APR, prepayment penalty fees, late penalty fees, refinancing options, rollovers, and so on. For example, many companies will offer to change the contract and add many refinancing options if you ask before getting the loan. Also, check their policy on how private your personal information will be.

  • Register only with legit and reputable companies

These are typically companies that make many lists on big personal finance blogs. Most of them have a BBB rating of A+. If they have a lower rating, they still have to be accredited.

  • Lower Your APR

If your credit score is less than perfect, you will probably get a high APR. There are a few tactics that you can use to lower it significantly. One of them is to get a secured loan. If you put something in collateral, like your car, companies feel safe and are ready to offer you a low APR. You can also get a co-signer. In this case, again, the lenders feel that you will surely pay the loan on time and will agree to lower your APR. But you have to be sure that you will pay it on time because you risk losing your collateral or friendship with that person.

What Other Options People with Low Credit Score Have?

  • Get money from credit unions and banks

While banks have more requirements for your credit score, credit unions work perfectly for people with fair credit or above. Banks are profit organizations and don’t care too much about loans. Instead, they care more about credit cards because they are more profitable. Credit unions are non-profit organizations where you can get money. Credit unions spend more time evaluating your actual financial situation instead of only looking at your credit score.

  • Credit cards

Credit cards are available for all purposes, from a bad credit score to a perfect credit score. For some of you, this can be a great way to avoid getting a loan.

  • Avoid getting a loan

Are you sure that you really need a loan? There are many things that you can do to avoid the loan. Ask for cash from your employer in advance. Ask for some money from the people you know. Try to save some money or even find some fast ways to make money online, like freelancing. Many ways can help you stay away from loans.

Conclusion

You always have chances to get a loan, even with a low credit score. Be pickier to find the best offers available to you. Finally, avoid payday loans and auto title loans.

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