Amid the rising cost of living, it is being difficult for people to make ends meet. The government help is not suffice and wages are not much. As a result, it is forcing people to borrow more and more money.
Though borrowing is one of the best ways to fund the shortfall in cash, it is important to realise that you are to pay it back. Lenders are not giving away money. If you have bad credit score, it could be more challenging to keep up with payments as interest rates are higher for people with poor credit report.
There are various types of funding sources you can use to stay afloat, but not all types of loans are ideal for all situations. Each loan has its own pros and cons and they can be used in particular situations.
Personal loans seem to be ideal to many people as they do not require collateral, but they may be subject to higher interest rate especially if your credit score is not up to the par. There are so many other loans that you can consider applying for instead of personal loans.
Why are bad credit personal loans expensive?
Personal loans are unsecured loans. Whether you apply for these loans for minor emergencies or unforeseen expenses, you do not have to put down the collateral. It means if you make a default, you do not need to worry about losing your assets.
As it increases the risk of a lender, they will charge high-interest rates. If your credit rating is bad, the risk doubles, and therefore these loans could be a bit more expensive.
If you are looking to take out a personal loan, you should ensure that you will be able to repay the debt on time. If you make a default, you will end up paying accrued interest. This will add up the cost of the loan, and you will eventually fall into debt.
Alternatives for personal loans when your credit report is not stellar
If you have got a bad credit rating, you should consider alternatives to personal loans. They are way better than personal loans when it comes to affordability.
When you need money for unforeseen expenses
If you are looking to take out personal loans for financial emergencies, you should consider the following alternatives:
- Short-term loans
If you need money to fund unforeseen expenses, you should consider best short-term loans for bad credit. These loans are much more affordable than personal loans for bad credit.
As these loans have been designed to help with emergencies, a lender will quickly approve your application. You will be paying down the debt in weekly or bi-weekly instalments based on the amount you borrow.
This makes the debt much more manageable. You will get these loans at a lower interest rate than personal loans.
- Payday loans
Payday loans are the most convenient funding source when it comes to meeting emergency expenses. The best part about these loans is that no hard search footprints will be shown on your credit file.
Your lender will make a decision based on your repaying capacity. You will get money the same day you put in the loan application. Therefore, these loans are called payday loans with instant cash. You will then pay off the debt once and for all on your next payday.
- Unemployed loans
Payday loans are aimed at helping bad credit borrowers who have a fixed source of income, but what about if you are out of work and need money to fund unexpected expenses.
You can take out unemployed loans. These are also known as unsecured personal loans for the unemployed with no guarantor. Since a lender is ready to lend you money without work, it does not mean that you should not have to prove your repaying capacity.
A lender will look at your passive income sources to determine your repaying capacity. These sources include but are not limited to unemployment benefits, dividends, rental income, freelance income and income from a part-time job.
When you need money for planned expenses
If you are looking to borrow money for planned or significant expenses like a wedding, you should consider the following alternatives for availing of lower interest rates.
- Secured loans
Secured loans carry lower interest rates than personal loans. Your poor credit rating increases the risk of a lender, but when you put down the collateral, it minimises the risk on the part of a lender.
However, you should be careful about your repaying capacity so you do not lose your valuable assets. Use online calculators to know the estimated cost and then evaluate if you will be able to manage it. Do not forget to allow for extra payment in your budget, as the actual cost is always higher than the estimated one.
- Guarantor loans
If you are a bit reluctant to put down security, you can consider taking out guarantor loans. In order to strengthen your application, you will have to arrange a guarantor with a good credit history who will be liable to pay off the debt if you make a default.
The guarantor could be anyone your parents, friends or your spouse. Make sure that the person acting out as a guarantor know the ramifications if you fail to pay off the debt. It could affect your relationship with the guarantor if you fail to clear the dues.
The bottom line
You do not need to discourage yourself from taking out personal loans as long as you can repay them on time. However, there are some alternatives that you can consider if your credit file is not stellar.
If you need money to fund unforeseen expenses, you can take out instant payday loans, unemployed loans and short-term loans for bad credit. However, if you want to borrow a large sum of money, you can take out secured and guarantor loans. Whether you borrow money for small expenses or large expenses, you must ensure that you do not fail to repay the debt because falling behind payments can throw you into debt.
