Better Options than Payday Loans for Bad Credit Borrowers

Cash-strapped people with poor credit scores can become desperate borrowers. In this situation, those in need of money may turn to any source for funds including short-term lenders, but when it comes to payday loans for bad credit borrowers, are there other options? For many, there may be. For instance, consider a typical Texan with an unexpected emergency. Where do they turn? Maybe they search for payday loans San Marcos TX and find one kind of help there. In fact, cash-strapped borrowers may have more choices than they know.

Are There Alternatives to Payday Loans for Bad Credit?

Investopedia notes that payday loans with bad credit can be devastating to a borrower’s personal finances. While it can be tough for those with bad credit to gain access to alternate borrowing options, they do exist.

Borrowers can look into personal installment loans or search for cash loans near you. This type of loan features minimum repayment terms of 90 days, renewal limits and one-time only late fees. Personal installment loans do not require collateral nor do they come with mandatory arbitration. When a financial institution considers a borrower for a personal installment loan, the bank will assess his or her ability to repay the money while the lenders of payday loans with bad credit may not check whether a borrower can pay back the loan.

A cash advance from a credit card is often a better borrowing option than bad credit payday loans. Cash advance interest rates are not usually ideal, but they are typically less than the fees charged by the payday loan industry. Even if the interest rate for cash is at 30 percent, which is high, this is cheaper than the fees charged for payday loans with bad credit.

Turning to Retirement Accounts or Life Insurance Companies for a Loan

If a borrower has a retirement account, then he or she may be able to make a partial withdrawal from it to cover a financial emergency. Individual IRAs or 401K accounts typically permit this. A person can borrow from an IRA once a year without incurring a penalty if he or she repays the loan within 60 days. If the money is not redeposited, then there will be a 10 percent tax penalty on the money withdrawn for those who are younger than 59 1/2 years old.

When it comes to taking money out of a 401K account, some employers allow it while others don’t. If it is allowed, a cash-strapped individual can take out half of the retirement account’s balance up to $50,000. He or she has five years to repay the money. In this situation, when the money is withdrawn, it is not earning interest.

Life insurance companies are other places to turn to for an emergency loan. Withdrawing money from a life insurance policy is a good option for those who have this type of protection. If an individual has cash value in his or her whole life insurance policy, then it may permit the person to take it out as a loan. In this case, the life insurance company will give the individual the rest of his or her life to repay it. If the borrower doesn’t ever pay the funds back, then the loan amount will be deducted from the death benefit.

Borrowing Alternatives That Don’t Involve a Financial Institution

Turning to friends and family members for a loan is an option that doesn’t involve a financial institution. However, this one can get tricky because borrowing money from loved ones may strain the relationship. To avoid this, borrowers should repay the money as quickly as possible and offer to pay it back with interest.

A pay advance is another alternative to payday loans for bad credit. Some employers will help a worker who is suffering from a financial setback by granting him or her an advance. If the company is a large organization, the financially strapped person should make the request through human resources. When the company is small, the person just needs to ask the owner.

When Bad Credit Payday Loans are the Only Available Option

Before turning to bad credit payday loans, it’s important for borrowers to understand the costs. Most lenders of payday loans for bad credit charge a fee that ranges from $10 to $30 for every $100 that they borrow. A $15 fee for $100 is the average amount. A person who needs $200 to cover a financial emergency will likely be required to pay back $230 in just two weeks. If money is already tight, then this could be impossible.

The Consumer Financial Protection Bureau, or CFPB, states that the lenders of payday loans for bad credit are notorious for encouraging borrowers to pay just the $30 fee to extend the payoff terms of the loan by a week or two. When borrowers agree, they wind up paying the $30 while still owing $230 at the end of the extension. The person will have paid $60 for the same $200 loan.

It’s Important for the Borrowers of Bad Credit Payday Loans to Know the Rules in Their State

If a borrower turns to a lender of payday loans with bad credit for money, it’s important for him or her to know about the rates and policies he or she will be expected to pay. This is vital whether the loan is coming from a physical store or an online lender. CNBC advises borrowers to search for the lender in the complaint database formed by the CFPB to check for problems.

Before taking out a loan, it’s best for borrowers to develop a repayment strategy to pay the funds back to the lender as quickly as possible. This will also help borrowers avoid rolling the loan over, which increases the amount owed.

Negotiating with Creditors to Avoid Sinking Further into Debt

If an individual needs money to cover a pressing bill, then it may be cheaper for the person to negotiate with a current creditor about a different bill owed than it is to borrow additional funds. By making a smaller payment at a lower interest rate, a consumer can not only repay the total balance more easily, but this step could also help him or her begin the process of saving money for the next financial emergency.

Greg McBride, a chief financial analyst for, said, “Nearly 30 percent of Americans don’t have any emergency savings at all. Every little bit you can squirrel away in a savings account acts as a buffer.”

It’s Best to Prepare for Financial Shortages

Instead of turning to payday loans for bad credit, it’s best to prepare for financial shortages. Individuals can do this by putting aside a little extra every month. Over time, an emergency fund will be established. While this savings technique is ideal, for many, money is simply too tight to accomplish it, making payday loans for bad credit necessary.