There are various types of short-term loans available in the market, and they all have more or less the same functions. Choosing the best short-term loan is quite challenging for borrowers because they do not understand what would be better. Most people take out payday loans because they do not require a credit check and paid off in a lump sum on the due date.
These loans seem to be very attractive because you can avoid losing your credit score and saving money in interest. However, you often slip up the cost of rolling over the loan. They may not hit your finances as long as you pay off on the due date. If you end up rolling over the loan, you will likely fall in a debt trap. This is why many lenders have mentioned bad credit loans as the alternative to payday loans, and they have shown that they are more affordable than them.
You must have come up with several terms like quick loans, cash loans, instant loans as alternatives to payday loans, but you do not realise that they can be another form of payday loans. Payday loans aim to help bad credit borrowers, so it will not be wrong to address them as bad credit payday loans. They are small loans, and you can get money the same day you pay off the next payday.
Likewise, cash loans, instant loans and bad credit loans are also processed quickly, and you are to pay them off within a short period. This raises a question if bad credit loans and payday loans are the same or the former is actually better than the latter.
When can bad credit loans be the same as payday loans?
Some lenders are selling bad credit loans, but they, unfortunately, do not differ from payday loans. Many people realise it when they are offered to roll over the loan when they fall behind the repayment. Once you roll over such a loan, it turns into a payday loan. You keep rolling over the loan and eventually end up with a debt trap. You must know how the loan works before signing the agreement. If the loan offers the following features, it is no different from a payday loan:
- The lender does not run a credit check.
- You are to pay off the debt in a lump sum.
- The lender offers you a rollover deal when you fall behind repayments.
- The repayment period is 14 days.
If you find that a lender is offering you bad credit loans with features mentioned above, you should understand that it is a payday loan in disguise.
When are bad credit loans different from payday loans?
It is essential to remember that not all lenders are spurious. Some lenders follow FCA guidelines strictly even though they are not affiliated with it. The loans for bad credit they offer don’t need to be the same as payday loans. A bad credit loan will be better than payday loans if it meets the following conditions:
- Your lender runs a credit check to know your financial behaviour.
- The lender will assess your income statement to ascertain if you can manage to repay the debt.
- The loan term is not less than a month even if you borrow a small amount as possible.
- You will pay down the debt in instalments. If the loan is to be paid in a month, it will be weekly or bi-weekly instalments.
- The lender revises your repayment plan in case you are struggling to pay off the debt.
If you are looking to apply for bad credit loans, you should evaluate the terms and conditions in the contract before signing it. Make sure that you have researched the market well.
Consider applying to credit unions
Like banks and online lenders, credit unions also offer loans. Credit unions can be a better choice for you because they provide loans at competitive interest rates. They make decisions based on what you need and what you can afford instead of thinking about what they can make out of you.
Credit unions are different from banks and online lenders. They are non-profit organisations. You can apply for loans for the credit union for any purpose, and you will get the loan at the lowest possible interest rates. The maximum interest rate credit unions can charge is 12%.
Even though you are a bad credit rating, you can quickly get the deal at lower interest rates than other financial institutions. However, they may not have as many options, as is the case with online lenders and banks.
Whether you apply for a loan with credit unions or direct lenders, you must carefully analyse your repaying capacity. If you borrow more than your affordability, you will fall in trouble. Your credit score will go down, making it more difficult for you to borrow money at affordable interest rates down the road.
If you are looking to apply for a bad credit loan, make sure that they are not payday loans in disguise. Ask the lender how it works, wise up about their features, read all terms, and conditions before signing the agreement.
