It’s possible to get approved for a loan if you need fast cash but don’t have the best credit score or a steady source of income. Some lenders cater to borrowers who can’t get approved elsewhere with emergency loans, payday loans, and bad-credit or no-credit-check loans.
These loan products are relatively simple to access. Still, they’re worth avoiding and exploring other options, as they can mean bad news for your finances.
Why an easy loan can cause difficult risks
Getting approved for an easy loan can give you temporary financial relief. However, these debt products often become more costly than borrowers initially imagined and cause long-term financial distress.
For starters, easy loans generally come with exorbitant interest rates and fees, which means you’ll pay several hundreds or thousands of dollars in interest over the loan term. If you opt for a payday loan, you could pay less interest, but you’ll still be charged a three-figure interest rate that may make it challenging to repay what you borrow by the due date. Falling behind on loan payments could also mean adverse credit reporting, damaging your credit score.
So, it’s worthwhile to explore traditional personal loan products. They can be a bit more difficult to get approved for, particularly if your credit score is lower, but they have fewer potential pitfalls.
Easiest loans and their risks
If you’re searching for loans to cover an unexpected expense, you might consider taking out an emergency loan, a payday loan or a bad-credit or no-credit-check loan. While these loans are usually easy to get, each has risks.
An emergency loan is a personal loan used to cover unexpected expenses, such as medical bills or car repair bills. Lenders typically let you borrow $1,000 or more; some lenders even deposit the funds into your account the same day you sign the loan agreement. The interest rate on an emergency loan depends on several factors, such as your credit score, income and debt-to-income ratio.
Expect to pay between 5.99 and 35.99 percent in interest. The lower your credit score, the higher the interest rate. If the lender charges origination fees, you’ll generally pay between 1 and 8 percent of the loan amount.
Payday loans are short-term loans designed to be paid back by your next pay period or within two weeks of taking out the loan. Because most payday lenders don’t check your credit, these are easy loans to get. However, they come with serious drawbacks in the form of steep interest rates and fees.
In fact, the average interest rate on a 14-day, $300 payday loan is more than 650 percent in some states. If you cannot repay the loan by the due date, you could incur what’s referred to as rollover fees (assuming payday loan rollovers are permitted in your state).
Risks: Since these loans come with excessive fees, they’re best used as a last resort. If you can’t afford to repay the loan by the next pay period, you risk digging yourself into a deeper hole financially.
Bad credit or no-credit-check loans
A bad credit loan is a personal loan for borrowers with less-than-stellar credit or minimal credit history. Although minimum credit score requirements vary by lender, you’ll typically need at least a 580 credit score to qualify. If you don’t meet the lender’s minimum credit score requirement, getting a no-credit-check loan is a possible alternative. The downside to a no-credit-check loan is similar to a payday loan — it comes with high APRs and fees.
Risks: If you have a really low credit score, you risk being charged a high interest rate and fees — some personal loan lenders have maximum interest rates as high as 35.99 percent.
Alternatives to easy loans
If you want to avoid the borrowing costs associated with the loans discussed above, here are some alternatives to consider.
Local banks and credit unions
If you’re a member of a local bank or credit union, contact it to see if you can qualify for a personal loan. Since you have a relationship with the institution, you may qualify for better rates and terms. For example, PenFed Credit Union offers personal loans with no origination fees and APRs as low as 7.74 percent.
Local charities and nonprofits
Check with your local chamber of commerce or library or dial 211 to see if grants are available in your area. Your income level may qualify you for federal or state rental or food assistance programs. If you need help paying for rent, you can use the U.S. Department of Housing and Urban Development’s database to search for rental assistance programs in your area.
If you can’t afford to pay for a phone bill, medical bill or another bill in full, ask the company if you can set up a payment plan. Although you’ll probably be charged an additional fee or interest, it might cost less than getting a loan. Furthermore, you won’t have to submit a formal application or undergo a credit check.
If you need to pay for an expense immediately but don’t get paid until a week from now or later, ask your employer for a paycheck advance. You’ll be borrowing money from yourself, which prevents you from racking up debt and having to repay interest and fees to a lender.
Loan or hardship distribution from your 401(k) plan
If you need more money than you could get with a paycheck advance or your employer doesn’t offer them and you have a 401(k), consider asking for a 401(k) loan or hardship assistance. There’s no credit check, and you can access the funds quickly in most cases.
But you can expect to pay interest on the loan amount even though you’re borrowing from yourself. These funds are deposited back into your retirement account but on a post-tax basis.
Borrow money from family or friends
If you want to avoid taking out an easy loan or pay minimal interest, ask a family member or friend to borrow money. This option lets you avoid the formal process of applying for a loan, and you may have more flexible repayment options. Also, the person who loans you money might not charge you interest. Get the terms of the loan agreement in writing and repay the loan as promised to avoid damaging your relationship with the lender.
Before you take out an easy loan, make sure you explore all of your borrowing options. Take some time to research and weigh each alternative’s benefits and drawbacks to decide which makes the most financial sense.
Doing so can help you pay the least interest possible or get the best terms. But taking out an emergency loan is your only option to access cash quickly, prequalify for a personal loan to compare rates, fees and terms from multiple lenders. If you have a credit union or bank membership, contact it to see if you qualify for a personal loan. Most importantly, assess your spending plan and only borrow what you can afford to pay back promptly.