Can You Build Credit With a Car Loan
How to Get a Loan With Bad Credit
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Having a bad credit score can make getting a loan challenging, but there are still options if you find yourself in a pinch. From title loans to cash advances, there are a number of ways to borrow money with bad credit. However, these methods often come with high interest rates and other consequences, so you'll need to think carefully before using one.
Title Loans
At first glance, title loans seem similar to payday loans. Most such loans are for only 15 or 30 days (although some can have terms as long as a year), and they're generally for relatively small amounts of money — $1,000, for instance. You usually put up your car for collateral, and in exchange, you get the money you need to survive until your next paycheck without a credit check. Seems simple enough. Even so, title loans come with some
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That isn't to say that title loans are completely useless. In extreme emergencies where no other option is available, a title loan could be your only lifeline. It should, however, be a last resort.
Payday Loans
Compared to conventional loans, payday loans — also known as fast cash, fast loans, deferred deposit transactions, bad credit loans and other names — have almost no requirements. You need a bank account, government-issued ID or Social Security number, a regular job or other income source and be at 18 years old — no credit check needed The loan application process itself can take as little as five minutes, and many payday lenders operate 24 hours a day or online. In exchange for borrowing a small sum, usually around $100 to 1,500 dollars, you authorize the lender to take out that amount plus interest and fees from your bank account come payday. Your repayment is guaranteed either by post-dated check or by turning over electronic access to your bank account.
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In a true emergency, a payday loan could be useful. However, there are a lot of reasons why taking one out should be a last resort. On average, their annual percentage rates (APR) are around 400 percent. Because of this, it can easily cost $50 to $100 dollars to borrow just $500 from such a service — enough to quickly make people in desperate financial straits in an even worse position once they come due. Payday loan companies also specifically target poor communities because they know they're likely to be trapped in a debt spiral because of payday loans. On top of that, you can be sued for missed payments on a payday loan, and repaying them doesn't build up your credit score.
Cash Advance
If you have a credit card, odds are that you can use it to get a cash advance. You may need to ask your card provider for a special PIN number, but once you have it, you can use your card at any ATM to withdraw cash, up to a limit that's usually smaller than your total available credit for that card. Your bank might also issue you a book of convenience checks that allows you to take out an advance by cashing one. You can determine if your card is eligible by calling the customer service number of your card.
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Of course, the thing about cash advances is that they cost you in the long run. Unlike with other credit card charges, cash advances start earning interest from the moment you take them out, so there's no way to avoid paying extra on what you borrow. While nowhere near the 300 APR of title loans, you'll still pay more interest than you normally would. There's also usually a steep fee — often 5 percent with a $10 minimum per transaction — that further puts you in debt from the get-go. Additionally, if you pay only the minimum on your credit card bill, the credit card company can apply that money to lower-interest regular debt first, costing you more. (If you pay more than the minimum, the credit card company is legally required to apply the money to the debt with the larger interest.)
Overall, cash advances are usually a better idea than payday or title loans, but they should still be saved for emergencies, such as when lack of money could lead to eviction or when you're stranded in a foreign country.
Loan Alternatives
Unfortunately, many loans aimed at people with bad credit are designed to push them even further into debt, as the above options prove. However, there are some better options as well. If you're considering taking out a payday loan, you might want to try an aptly named payday loan alternative (PAL) instead. It allows you to borrow similar amounts of money for much more reasonable interest rates, although you do have to be a member of a credit union to get one. You could also contact the Mission Asset Fund, a nonprofit that provides zero interest loans to people across the country in exchange for signing up to take free financial literacy classes. And if all else fails, regular credit cards or a personal loan are both cheaper ways of borrowing money in the long-run, and you can sometimes get them even with poor if not terrible credit.
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There are also ways to deal with existing debt besides taking on more debt. A debt consolidation loan takes some or all of your existing debt and transfers it to a single lender who holds you to a single, lower interest rate, saving you money. If rent or some other expense is coming due, it can also be worth speaking with the money you owe money to rather than immediately taking out an expensive loan. In some cases, people and even companies will offer a two-week grace period if asked, which could negate the need for a loan at all.
Can You Build Credit With a Car Loan
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