Borrowing Options When You Have Fair Credit

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Fair credit is a step below good credit, but it is better than bad credit. Lenders will charge you more than someone with a good credit score, while some won’t work with you at all. Let’s look at some of the best and worst options when you need to borrow money but have fair credit. 

Online Personal Loans for Fair Credit

Online personal loans are an option if you have fair credit. We’d recommend using Match Financials personal loans for fair credit, since you can shop around for a competitive interest rate and favorable loan terms.

 Online personal loans have a number of benefits beyond the ability to comparison shop for them. You can apply for the loan online. If approved, the money will be deposited into your account rather quickly. You’re not limited to bank hours to apply for a loan, and you can find creditors who will work with you even if your bank won’t extend an unsecured personal loan. One of the benefits of online personal loans is that they are unsecured. If you’re late with the payment, it hurts your credit, but no one is going to seize assets you own at the most inopportune time. 

Credit Cards 

If you have a credit card, you can probably charge your latest expense to the card. However, this isn’t always an option. For example, you may have already hit the credit card’s limit. Then your transaction will be declined. Credit cards aren’t an option if you don’t already have one. For example, someone with bad credit may not qualify for a credit card. And you can’t make a purchase with a credit card if you don’t yet have one.

 What if you’re in need of quick cash? Perhaps you need to pull 200 dollars to pay for new tires at a repair shop that doesn’t want to pay 2 to 3 percent in credit card transaction fees. Or the tow truck driver doesn’t have the ability to process credit cards, though they are willing to stop at an ATM so you can withdraw cash. If you take out a cash advance against the credit card, you’ll have the cash. However, the lender will start charging you the 20 to 30 percent interest on that amount immediately. In contrast, the purchases you make via the credit card won’t accrue interest until the end of the month. Furthermore, the credit card company may charge you an ATM fee just like your bank would if you used an out of network ATM. 

Whole Life Insurance 

Dave Ramsey has referred to whole life insurance policies as the payday lenders of the middle class. You pay anywhere from 100 to 400 dollars a month in premiums for a life insurance policy that pays out the same amount upon your death as a term life insurance policy that costs a fraction of that amount. They promote it as a way to avoid paying premiums in the future. This isn’t really a value-added feature. You’ve just paid them so much money by that time that the 10 percent stock market returns they see from your principle pay the premiums. The insurer argues that is a worthwhile service, because you can become your own bank. You are able to borrow against the cash you’ve paid in. That can be a valuable source of money if you’re in a pinch. However, it isn’t free. You paid the money in. If you had paid for term life insurance and saved the difference, you’d have that money in an emergency fund. You wouldn’t have to go through the insurance company to access that money for unexpected expenses, much less pay interest on what you borrow.

 Note that the money you borrow against the life insurance policy isn’t free in any way, shape or form. If you die unexpectedly, the outstanding loan amount will be subtracted from the insurance policy payout. 

Home Equity Loans 

This is only an option if you own a home and have sufficient equity to borrow against. One benefit of a home equity loan is that it has a low interest rate, since it is secured by your home. The risk you’re taking is that you’ll lose your home if you don’t make the payments. A different mistake many people make is regularly cashing out their home equity for debt consolidation, paying for emergency expenses or renovating their home. They treat their home like a piggy bank but never pay off the loan. This prevents you from truly building equity, and you never eliminate the house payments that should be gone by the time you hit retirement. If you have to sell your home, you run the risk of owing money after closing if it sells for less than you owe. 

Title Loans 

Title loans are a bad choice for many reasons. They charge an extremely high interest rate. These interest rates can exceed a one hundred percent annual percentage rate. If you miss your payment, you lose your car if they won’t let you convert the loan into an expensive installment loan. Note that this is due in addition to your car payment. If you have a car loan, you’ll still owe the car payments even though your car has been taken by the title loan place. 

Payday Loans 

Payday loans are the worst possible borrowing option. They typically advertise a 15 to 20 percent interest rate. This is deceptive, though, because that’s the interest rate you pay per pay period. This means you’re paying a 15 to 20 percent interest rate over a 2 to 4 week pay period. That is equal to a 400 to 500 percent annual percentage rate. For comparison, credit cards are thought to have a high interest rate if it hits 30 percent. And if you have to pay a fee to roll over the payday loan because you can’t pay it off (and most people do), then you’re paying up to 1,000 percent interest. 

This is why we consider payday lending the worst way to borrow money in a pinch. Literally, anything else would be better than a payday loan. 

Hi! I am a millennial mom with a passion for personal finance. I have always been “into” personal finance but got inspired to start my blog after a period of extended unemployment. That experience really changed the way I viewed my relationship with money and the importance of accessible personal finance education.

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