The idea behind a payday loan is a rather simple one: you need quick cash, but your bad credit score prevents you from taking out any short-term loan from a traditional lender, such as a bank or a credit union.
Many lenders offer these types of loans, which are appealing to individuals with bad credit, especially since third-party lenders don’t perform credit checks. In this article, we’ll discuss payday loans for bad credit, how they work, the top factors to consider before taking out a loan, and the advantages and drawbacks associated with payday loans for bad credit.
Want to get started right away? Simply fill in the online form and a payday loan can be on your way.
What Are Payday Loans for Bad Credit?
Payday loans are small-dollar personal loans on very short repayment terms in which borrowers borrow anywhere between $200 and $1000 (the actual amount may vary from lender to lender) until their next paycheck, giving these loans a short repayment term of two to four weeks.
Payday loans are characterized by a fast loan application process, fast loan approval, and the absence of credit checks, which makes them appealing to borrowers with poor credit. However, to ensure repayment within the specified and agreed-upon term, many lenders require direct debit authorization, allowing them to withdraw the repayment directly from your bank account.
The absence of credit checks means that the lender won’t inquire about your credit history, though they might inquire about your credit score. Due to their short-term nature and the limited loan amount, lenders won’t base your creditworthiness and eligibility for the loan on your credit score.
Instead, your credit score is used to determine the appropriate interest rates and repayment terms; naturally, more competitive rates are reserved for those with better credit. Once you apply for the loan, online lenders offer online applications, and the lender will review your application and decide whether or not it should make a loan offer.
After you submit all the necessary loan documentation required by the payday lender, the lender will deposit the loan funds directly into your bank account on the next business day. Some lenders even offer same-day funding for those who need quick cash to address their immediate financial needs.
Due to their short-term nature and lack of any collateral, payday loans, including online payday loans, come with exorbitantly high interest rates and annual percentage rates (APRs) that may go as high as 400%. Since they’re unsecured loans with very high interest and additional fees, payday loans should be treated with extreme caution.
Top Factors to Consider Before Taking a Payday Loan for Bad Credit
It’s vital to understand your options before signing the loan agreement; defaulting on a payday loan is pretty easy (which is why they’re considered predatory loans). This can lead you to secure another loan to pay the current one, with the cycle continuing in perpetuity. Below is a breakdown of the top factors to consider:
Have a Goal
Make sure you completely understand the breadth of your financial needs before applying for the loan, as well as the reasons you’re applying in the first place. This will help you determine what type of loan you’re looking for. For example, taking out a payday loan only to pay the utility bills or buy a home gaming console isn’t a financially responsible decision.
This is particularly true with the former, as there are better ways to secure funding to cover your immediate financial needs. Ask around for small loans for bad credit, installment loans for bad credit, or simply ask your friends and family for some financial assistance.
Ultimately, if a payday loan or no-credit-check loan is your only financing option, find a reputable lender.
Research Different Lenders
Just as no two loans are the same, no two lenders are the same, and there are subtle differences in the loan products they offer. Most people skip this important factor, as they don’t pay attention to where the money comes from when they’re in a hurry or a financial emergency.
However, you should research different lenders. Due to the short-term nature and higher interest rates associated with payday loans, many dishonest lenders use such loans to trap borrowers in an endless cycle of debt.
Find and read online reviews of different lenders and talk to other people, friends, or family, who have previously borrowed money from different lenders, and ask them about a recommendation.
Read the Fine Print
Payday loans usually have a lot of fine print that might mention otherwise hidden fees, late payment fees, mentions of an origination fee, and late fees, so it pays to read the information thoroughly.
The reason why you want to read the fine print is to be aware of all the terms before deciding to get a payday loan with bad credit, as to avoid any legal and financial implications down the line.
Advantages of Payday Loans for Bad Credit
There are several advantages associated with payday loans for bad credit, and the lack of credit checks, along with the online application process, makes these loans appealing to those with low credit scores who seek quick access to cash. Here’s a complete list of benefits associated with payday loans for bad credit:
Simple Application Process
Most modern lenders allow you to apply for a payday loan online whenever you want, from the convenience of your home. Just fill out the online form. We’ll share your application with our vast network of lenders, and once a lender approves your loan application, they’ll contact you with a loan offer.
Since we’re sharing your application with the entire network, it’s not uncommon for you to receive several simultaneous offers, allowing you to choose the one you like the most.
Quick Access to Funds
Once you accept a bad credit loan offer, read the fine print, and sign the loan agreement, the lender will deposit the money directly into your checking account. Most direct lenders now offer the same- or next-business-day funding, allowing you to cover any financial emergency with haste.
Zero Risk of Losing Personal Property
Payday loans are unsecured loans, and as such, they’re not backed by collateral the lender could repossess in case you default on the loan. This does limit the loan amount you could take and influences the interest rate, but you’re not required to part with your property in case of default.
However, that doesn’t exclude dealing with collections and legal repercussions. Fortunately, those can be avoided by adhering to the repayment plans and making timely monthly payments if you took out a payday loan over two repayment periods.
No Hidden Fees
All the lenders we partner with are regulated by the Financial Conduct Authority (FCA) and are held to the highest possible standard, so you know you’re in good hands. There are no hidden fees associated with our loans; all the fees are clearly outlined and transparent in the loan agreements provided by the lenders.
Disadvantages of Payday Loans for Bad Credit
While they offer plenty of benefits, especially to those with bad credit, payday loans for bad credit aren’t without their drawbacks, most of which are listed below:
Higher Total Costs
Payday loans typically have very high annular percentage rates since lenders often consider them risky. These rates often range up to 400%, which means that if you borrowed $500 on a 30-day repayment term, you’d have to pay back $664.38. This is what makes payday loans so pricey and why it’s important to review and compare different lenders before you sign up for a loan.
More Eligibility Requirements
Despite payday loans for bad credit being marketed and advertised to borrowers with low credit scores, these loans might have other, higher approval standards. You still have to demonstrate your ability to repay the loan by submitting various documentation, and the repayment terms are usually very strict. There’s also the increased risk of default, with lenders offering refinancing loan options that could easily trap borrowers into more debt.
Additional Fees
Some lenders impose various prepayment penalties, origination fees, and other potentially hidden fees that are either circumstantial or included in the APR associated with the loan. This is why most financial advisors and credit counselors advise against payday loans.
Predatory Loans
Not all payday loans are bad, but reputable lenders often compete alongside dishonest and predatory lenders looking to entrap borrowers. Both don’t typically check your FICO score, making you take financial responsibility for an increased risk associated with the loan, but the latter often imposes unrealistic interests and repayment terms.
Summary
Payday loans for bad credit are a fantastic solution for making ends meet or addressing a financial emergency without having to turn to traditional financial institutions for a loan, which they’ll most likely deny on account of bad credit.
If you’re looking for a payday loan with bad credit, don’t hesitate to contact us via our webpage, and we’ll help you find a suitable payday lender; all you have to do is fill out a loan application on our website.