- Emergency loans for bad credit include payday loans, title loans and bad credit personal loans.
- It’s often possible to find better options and avoid expensive loans that can get you into trouble.
- Plan for emergency borrowing in advance and start an emergency fund.
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Your credit isn’t great, but you’ve been carefully stretching your paycheck to cover basic needs every month – until your car quits on you, your toddler stuffs a toilet full of Legos or your dog gets sick. Mechanics, plumbers and veterinarians don’t work for free and you need cash fast. But how do you get an emergency loan with bad credit?
What is an emergency loan?
An emergency loan is any form of financing that you can access quickly. It may be a personal loan, payday loan, title loan, overdraft, credit card card cash advance or other funding that’s available in days or even hours.
Emergency loans aren’t hard to find. A quick online search turns up dozens of outfits willing to lend money. And if you have good credit, it’s easy to get approved for a personal loan and receive your money quickly. Unfortunately, many who don’t have emergency savings also have low credit scores.
What types of emergency loans are available if you have bad credit?
The most common emergency loans for people with low credit scores are title loans, payday loans (also called cash advance or check advance loans), and personal loans for bad credit.
Title loans typically last 15 or 30 days and use your car, truck, motorcycle, or other vehicle as collateral. You can normally borrow up to half of the vehicle’s value, paying about 25% interest – per month. When you get a title loan, you have to give the lender your vehicle title. Most lenders require you to own the car free and clear, but some will work with you if you’ve paid off most of your auto loan. You’ll need to supply the vehicle, a photo ID, proof of insurance and possibly a duplicate set of keys. The lender may also install a GPS on your car to track it.
Here’s how a title loan typically works: You borrow $2,000 against your $8,000 car. In 30 days, you owe $2,500 plus any other fees the lender charges. That translates to an interest rate of about 300% per year. If you can’t repay the loan in 30 days, you may be allowed to roll it over – for another set of fees plus another 30 days interest – a minimum of $3,000 due after 60 days.
Make sure you have a plan for repaying the loan because you can lose your $8,000 vehicle even if you make partial payments. The lender can legally sell it and keep all the money, even if the sales proceeds exceed what you owe.
Payday loans are usually smaller than title loans – $500 or less. In most cases, you write the lender a personal check for the amount you want to borrow plus loan fees. Or, you authorize an electronic transfer of that amount from your bank account. If you don’t repay the loan on time, the lender can cash the check or debit your account.
Expect to pay $10 to $30 for every $100 borrowed. A $15 fee to borrow $100 for two weeks translates to nearly 400% per year in interest. If you can’t repay the loan on time, your lender will probably let you roll it over. So if you pay $30 to borrow $200, you owe $230 after two weeks. And $260 after four weeks, $290 after six weeks, and so on.
How does an emergency loan for bad credit work?
A quick online search turns up dozens of emergency loans for bad credit. The terms “no credit check” or “guaranteed approval” and “funds in an hour” tell you that the loan is for bad credit. The challenge is finding an emergency loan that does not become an unaffordable problem.
Minimum credit score for a bad credit emergency loan
What you want is a fast loan with the best terms for which you qualify. Yes; you can find loans that don’t require a credit check, but if your FICO score is around 600, you may qualify for a much better loan with at least a year to repay it and an interest rate of about 36%.
Credit score isn’t the only factor lenders consider. Your ability to repay the loan is key, so they’ll also analyze your debt-to-income ratio, or DTI. Your DTI equals your total monthly housing and debt payments divided by your gross (before tax) income. Many lenders prefer DTI under 36% but some approve up to 50%.
Getting approved for a better emergency loan
While most people can apply for a payday or title loan and have money in hours, those are loans of last resort. They can easily trap you into a cycle of rollovers and increasing balances. In fact, the Center for Responsible Lending says that “only 1% of payday loans go to one-time emergency borrowers.” The rest take out and renew loans 14 to 22 times in a year, paying roughly 400% interest.
So while it may make sense to take out a payday loan to save your job or a pet’s life, you should try to get a better loan if possible – a personal loan, P2P loan or credit card for people with good or fair credit.
Secured loans are generally easier to get and have better terms. Look for secured personal loans if you have an asset you can pledge as collateral.
Get a loan with a co-borrower who has better income or credit than you do. The lender examines both of your credit histories, debts and income.
Enlist a co-signer. Co-signers are only obligated if you default on (don’t repay) your loan.
If you fail to make your payments within 30 days of their due dates, the lender will likely report this to credit bureaus. That doesn’t only harm your credit score – it also damages your co-borrower or co-signer. Make every possible effort to pay your loan as agreed if you go this route.
Paying back an emergency loan for bad credit
It can be hard to look past the immediate danger an emergency presents. However, you need to consider how you’ll pay back your loan before getting it.
Longer terms incur higher interest costs but can keep payments more affordable.
Compare interest rates and terms when choosing an emergency loan, and use a loan calculator to see what the payments look like. Can you afford them?
What can you give up to save money until you pay off your loan?
What can you sell to pay off your loan once the emergency has passed?
How can you boost your income until you pay off the loan? More hours at your job? A side gig in your spare time?
Breaking the cycle of emergency debt
If you don’t consider how you’ll repay an emergency loan, it’s easy to get caught in a cycle of borrowing, being unable to repay in time, renewing or rolling over the loan, and being unable to repay the higher balance, again and again.
Once you make a plan for repayment, consider sticking with it a little longer – work a few more weekends, eat at home a couple of months longer, or temporarily cancel your streaming services or other subscriptions. Take that money and put it into an emergency fund.
You can even use that money to get a secured credit card, which you can use to improve your credit score and make borrowing easier the next time. Secured credit cards require you to deposit an amount equal to your credit line with the issuer. Use the card for small purchases like groceries and pay it off every month. After a few months of on-time payments, many issuers will extend you credit beyond the amount on deposit.
Why an emergency loan for bad credit is often not a good idea
If you are able to take a bad credit emergency loan for a short period and pay it back right away, and the loan saves you from something terrible like a job loss, dead pet or flooded home, it can make sense. But too many consumers take expensive emergency loans with no plan for repayment and dig themselves an impossible hole.
If you have to go that route because you need money fast, consider taking out a better loan to pay off the bad credit emergency loan. Better yet, prepare now for emergencies so you don’t have to accept bad terms.
Are emergency loans your only alternative?
Bad credit emergency loans may be your only choice. But try to find better options – for instance:
See if your employer offers paycheck advances for emergencies.
Look into cash advance apps like Dave that provide small advances or early access to your paycheck. You can typically get $100 to $500 and it costs almost nothing beyond your monthly fee.
Sell something you don’t need. Sites like eBay or Facebook Marketplace and apps like Gone can get it done.
Ask friends or family for help.
Start a GoFundMe for car repair and put the word out.
Emergencies can come out of nowhere and cause you to panic, especially if you have bad credit. But if you take a breath and work through your options, you might find the cash you need and avoid a cycle of costly loans and increasing balances.
Can you get into trouble if your cash advance check bounces?
People who deliberately write bad checks can get into trouble with the law and penalties can be stiff. However, failing to repay a payday loan is not fraud and criminal statutes don’t apply. Your lender can only sue you in civil court for walking away from a debt. However, most lenders are happy to let you roll over your debt and extend your repayment.
Can you refinance payday or title loans with better loans?
Emergency loans often have bad terms, but once the emergency has passed, you may be able to pay them off with more affordable financing – a personal loan, home equity loan, or credit card. A short-term solution doesn’t have to become a long-term way of life.
What interest rates do people with low credit scores pay for personal loans?
Personal loan or P2P loan interest rates top out at about 36%. That’s much lower than rates for payday or title loans.