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What You Need to Know About Short-Term Bad Credit Loans

Whether you’re coming up short before payday, looking to pay off debt, or some other emergency, finding cash quickly can be stressful. Adding the extra issue of a low credit score makes the situation even worse because of limited options. Some with bad credit look to payday or short-term loans to help bridge the gap between what they have and what they need. But are short-term loans worth the effort?

Payday lenders are businesses run solely to help those who are in a bind. While that sounds like a good thing, the problem lies in how these businesses are run. Because they know you have limited options, they use this to their advantage and will create obstacles that prevent you from ever getting out from under their grasp. This article will dive into what exactly makes these lenders so terrible and a few ways you can look for money elsewhere.

Why are short-term loans bad?

There are no standard interest rates. Emergency loan businesses aren’t regulated by any government body, so they can charge any interest rate they like. It’s common to see annual percentage rates (APRs) ranging anywhere from 20% to even 400%!

The payment terms are predatory. Payday loan businesses set up their payment terms so that it’s very difficult to pay off your loan in full without penalty. Missing a payment or falling behind can turn into a costly mistake that keeps you in their debt for longer than expected.

Short-term loans can damage your credit. Short-term lenders rarely do credit checks, so applying for the loan doesn’t affect your credit. The problem lies with what happens if you get behind on your payments. Your debt can end up in collections, which is then reported to credit agencies, lowering your score.

Types of short-term loans

There are typically three types of loans available to people who need money quickly and don’t have good credit scores:

Payday loans: Payday loans are short-term loans for people in an emergency that cannot be postponed until the next payday. These tend to fall below $500 and may have very high APRs.

Title loans: Title loans use your vehicle title as collateral. Like payday loans, they are intended for short-term use. The average loan is about 30 days. If you fall behind on payments, the company can seize your car to pay off the balance.

A cash advance on your credit card: Most credit card companies allow up to 50% of your available balance to be used for a cash advance. The advance can be deposited directly at your bank or withdrawn from an ATM. Cash advances have a higher interest rate than the standard annual rate, and interest begins to accrue immediately.

Short-term loan alternatives

If you need money quickly, the best place to start is by asking friends and family. But if you’re in a situation that either makes it difficult or you’ve already tried, here are a few other ways you can come up with cash quickly instead of using a payday loan.

Try gig sites: If you have skills that can be monetized, there are websites looking for people like you. Sites like Fiverr and Upwork are great for people who can edit, write, design websites, or are talented at sales or customer service.

Try doing manual labor: Places like local Facebook groups or your local Craigslist are full of people looking for moving or handyman services right now. The best part is you can get cash right away and don’t need to commit to something full-time.

Try microtasks and surveys: If you don’t want to do something as time-consuming as gig work, look for sites that pay people to complete small but critical tasks. Websites like Mechanical Turk offer hundreds of small tasks like surveys, data entry, or basic writing assignments. Survey sites like Pinecone Research or User Interviews pay you to participate in surveys you qualify for in the form of gift cards that you can sell or use.

Pawn your valuables: If you need cash right away, it’s time to clean out your garage. Electronics, televisions, gaming systems, jewelry, and collectibles can be sold to consignment stores or pawn shops for money quickly. If you choose a pawn shop, you can “loan” your things to them, ensuring you can keep your beloved items and get the money that helps you make it to your next paycheck.

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