Bad Credit Payday Loans: Basics & Alternatives for Poor Credit

Caitlin Meyers
December 2, 2019

“Bad credit? No credit? Less-than-perfect credit? No problem!”

We hear this all the time on TV commercials, the radio; we sometimes even see it plastered on billboards! But is having bad, little, or no credit history truly no problem for some lenders? 

The thing is, sometimes we just need a little extra help to make ends meet. There could be an emergency that requires immediate cash. Maybe your next paycheck is short some hours. An unexpected doctor or vet bill. Life happens. Whatever it may be, you could find yourself stranded and in need of cash quickly. When you have good credit, it is usually quite easy to get financial assistance. However, when you have bad or no credit, it can be difficult to get the help you need. So begs the question: when you have poor credit, is it truly possible to loans and the cash assistance from lenders you need? If so, can it be done without you becoming the latest victim of a predatory lender? Are there no credit check loans online, signature loans, credit union loans, debt consolidation loans or payday loans that are better for you?

What are credit scores?

People talk about credit scores often and we all know that the better your score the easier things can be, but despite how impactful our credit scores are to the quality of our daily lives, not many of us understand exactly what affects our score and how they are calculated. So first, it may be helpful to understand what a credit score is and how they are calculated. There are many different types of credit scores, but the most commonly used is the FICO credit score. According to myFICO.com, your FICO score is used by about 90% of lenders to determine your eligibility and level of risk for a loan. It’s pretty safe to assume that your FICO score will be used for most major loan considerations by lenders, such as mortgages, personal loans, payday loans, and other loans. Possible has loans that don’t require a FICO score.

How are credit scores calculated?

Now that’s all fine and dandy, but how is your FICO score calculated? MyFICO.com explains the breakdown as being grouped into five separate categories: Payment History (35%), Amounts Owed (30%), Length of Credit History (15%), New Credit (10%) and Credit Mix (10%).

It’s important to keep in mind that not everyone’s score is calculated exactly the same way. For example, someone who has limited credit history may be scored differently than someone with a longer credit history in some of these categories.

What’s a good credit score and what’s a bad credit score?

Since we now have a general idea of how your credit score comes to be, let’s take a look at what is considered good credit and bad credit for a borrower. A FICO score is a 3 digit number that ranges between 300-850. Most American’s credit scores range between 600-750, according to Experian, with a score of 670-739 being considered “Good”. A credit score of 580-669 is considered “Fair” and 300-579 “Very Poor”. Scores 740-799 and 800-850 are considered “Very Good” to “Exceptional”, respectively. Many personal loans and credit cards are accessible at credit scores higher than 650 or 700. If you are lower than 650, there are limited borrowing options available to you.

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What are some bad credit payday loan borrowing options?

Now that we have a better understanding of credit scores, let’s talk about bad credit lending options. We don’t always have the luxury of doing in-depth research on different loan options. When you are in a difficult situation financially and in desperate need of cash, you can’t always weigh multiple options. You just need the cash and you need it now.  But with bad credit, a credit card or personal loan is probably unavailable to you.

So are there any loan options for folks with poor credit? Yes, there is. Are there bad credit debt or loan options that can also provide a 100% guaranteed approval? No, there is not. However, that does not mean all hope is lost.

Folks with bad credit can instead apply for loans that do not perform a credit check. These types of loans typically use other means for determining your eligibility, such as your income, average cash flow, collateral, etc. With these loans, you will be required to repay the full amount in one lump sum, or over the course of multiple payments. High-interest rates and fees typically apply, as well.

So what are the different types of bad credit loans? Currently, there are two types: Unsecured and Secured. Here’s what each of these means:

Unsecured Loans

An Unsecured loan is commonly referred to as a payday loan or a cash advance. Personal loans are also an unsecured loan but it usually requires a higher credit score. Lenders will use your recent pay stub as part of the loan application to determine how much they believe they can safely lend to you. The amounts are small and you are usually required to repay the loan by your next pay period, or a 2-4 week loan term. 

The amount of money you can borrow is also based on where you live as most states have restrictive lending laws for small dollar, short-term loans. The interest rates from a lender also tend to be very high, up to 700% APR in some states. Lenders may also choose to deny your loan request if they believe you don’t make “enough”, as they require you to meet minimum salary requirements. Something as small as a recently bounced check or returned payment can also be the tipping point on a loan approval decision for a borrower. 

Payday loans are often predatory. If you miss a payment or are unable to repay on time, you may be forced to take out another loan from your lender to roll your previous loan into. This just continues to build on to your existing debt and makes it even more difficult to pay off your loan. According to the Consumer Financial Protection Bureau, or CFPB, nearly 80% of payday loan borrowers end up having to roll their loans over into a new loan. Meanwhile, over 60% of payday loans have borrowers paying more in fees than the originally borrowed loan amount. This can leave people with a lot of debt and in an incredibly vicious cycle and in a lot of cases, can be financially crippling.

Getting an installment loan from Possible is a much better alternative than using a traditional payday loan. The annual percentage rate (APR) of interest is much lower – 150-200% APR usually, repayment is flexible over multiple months, and you can build credit history unlike a traditional payday loan. Therefore, you’ll have the possibility of improving your credit with on-time loan payments.

Secured Loans

There is also something called a secured loan. Secured loans typically offer larger loan amounts and are “secured” by some sort of collateral. In most cases, this will be a car title or a home. Sometimes it may be property or even stocks. Basically, the lender is taking a risk by lending to you so they want to make sure they can get their money back if you’re unable to repay. A secured loan from a lender is a good option if you are needing more than just a few hundred dollars. However, there is much higher risk on you as a borrower if repayments become too difficult, as you could potentially have the collateral you used to get the loan repossessed. So borrow money with caution!

While unsecured short term loans for bad credit are typically in the $100-$1000 range, a secured loan can range between $1000-$25000. Unsecured loans have much higher interest rates, as the expected repayment period usually does not exceed one month. A secured loan will have lower interest rates, typically between 18%-36%. However, that can add up very quickly if you are repaying over the course of several years. For example, for a secured loan of $5,000 with a 60-month repayment plan with monthly payment, you could pay anywhere between $4000-$8000 in interest alone. That’s a large amount!

New companies are helping those with bad credit

That’s the problem people with bad credit and no credit face on a daily basis. There are limited options for financial help and many of those options take advantage of people who are already in difficult positions and have no other choice.

Thankfully there is a glimmer of hope to all this madness. This is a problem that has received more notice in recent years and new lenders and companies are beginning to enter the market with the intent to disrupt traditionally predatory lending. 

We’ve taken the time to look at some of the pro’s and con’s to some of the kinder, more flexible short-term cash options out there that have been popping up in recent years:

Possible

Possible is a fast and easy alternative for small-dollar loans. Possible does not require good credit and can approve you for up to $500 within minutes. With Possible, you just link your bank account, take a selfie, and after just a couple of prompts, their algorithm will make a decision. Despite not requiring good credit for approval, they do report all repayments to the 3 major credit bureaus (credit reporting) – Experian, TransUnion, and Equifax, allowing you to build credit history. Possible has one of the lowest interest rates currently on the market vs traditional payday loans, averaging around 150-200%. They also have one of the most flexible repayment options available, with the default repayment plan being set for 4 separate payments over the course of 8 weeks. Possible also offers an additional 29-day extension on each payment without any penalty or fees. With such a flexible approach to life’s obstacles, they’re quickly becoming a well-known alternative to short-term loans.

Pros:

  • Low interest rates vs traditional options
  • No hidden fees
  • Insanely flexible repayment options
  • Bad credit is ok
  • Can help build credit history
  • Receive money in minutes

Cons:

  • Maximum limit of $500 (this may vary based on the state you live in)
  • Currently available in a limited amount of states
  • Not everyone is approved

Earnin app

Earnin is a quick and easy cash advance app that allows you to cash out on money and income you’ve already earned, mid-paycheck. With Earnin, you link your bank account and upload your most recent pay stubs and quickly gain access to $100 to cash out and then they automatically withdraw the funds you received on your scheduled payday. Earnin operates without any set interest rates. Each time you cash out your income, they will ask you to consider including a tip. Be careful how much you tip because when it’s converted into an APR, it can be just as expensive if not more expensive than a traditional payday loan. Earnin will usually recommend a tip amount, but you are free to customize the amount as you wish. Earnin also relies on using your phone’s GPS to monitor when you are or are not at work. If the app does not detect that you are at your place of employment, you will not accrue funds to cash out on. 

Pros: 

  • No set interest rate – you choose the “tip” you want to pay
  • Simple protection to prevent overdraft fees
  • No credit check
  • Increased borrowing limits upon good repayment history

Cons: 

  • Dependent on your work attendance
  • Can only cash out $100 per day to start
  • You can only extend your repayment for each cash-out one time
  • Does not report to credit bureaus

LendUp

LendUp is another alternative to a traditional payday loan, although they are essentially just another online payday lender. LendUp offers single payment loans, cash advance loans, and installment loans between $50-$1000. They don’t necessarily do a hard credit check when applying and make their decisions by connecting to your bank checking account similar to Possible. They also offer an incentive program called the LendUp Ladder. You can gain access to lower interest rates and higher loan limits by making on-time repayments and watching financial educational content that LendUp provides. While LendUp does offer the flexibility of rescheduling and customizing your repayments, their interest rates can be as high as traditional payday lenders and there may be other fees/charges like origination fees and/or instant debit fees.

Pros:

  • No hidden fees
  • Flexible repayment terms that may come at a cost
  • Can build credit history
  • LendUp Ladder incentives 

Cons: 

  • High-interest rates
  • Currently available in limited states
  • Not available in an app
  • Solves short-term financial needs, not long-term financial health

Last Take

Despite how scary it can be taking out a loan, especially as someone who has poor credit, it is somewhat comforting to know that there are some companies out there trying to create more sustainable options for everyday Americans. Because let’s be real, the people that need the most help are typically the ones presented with the most limited options.

Here at Possible, we want to change that. Possible was founded by people who are experienced in financial hardship and struggle, some even as refugees, and people who have succeeded because they were lucky to receive a helping hand and wholeheartedly believe that kindness should be extended to all Americans. Apply for a Possible loan today and get the money you need in minutes while building long-term financial health.

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