Top Bad Credit Loans in Case of Financial Emergencies 

Your car suddenly broke down, or your pet needs immediate surgery. There is a medical emergency in your family or someone’s been in an accident. One has to be prepared for such unforeseen circumstances since they require instant cash. While you may have planned your personal expenses, monthly budget, and taxes, you may run into financial emergencies at one point or another. A recent study by TIAA Institute suggests that around 30% of Americans do not have even $2000 available for emergencies. The number is more startling for Black and Hispanic Americans –  41% of Black Americans and 40% of Hispanic Americans said they could not cover emergency expenses compared to 27% of White Americans.

It becomes even more challenging to get an emergency loan if you have a bad credit history. There is no definite parameter of what is considered a bad credit score, however, if your credit score is below 650, you are considered a high-risk borrower. Bad Credit Loans can help you get through difficult situations when you don’t have enough savings. Unlike traditional loans, most bad credit emergency loans can give you instant loan disbursement. There are two kinds of bad credit loans – secured and unsecured. If your credit history has several red flags, then the best option for you is to get a secured loan. A secured loan allows you to get a loan against your assets like houses, property, cars, or even stocks. Those assets are used as collateral – as security against default. If you do not pay the loan back on time, you will lose the asset. Secured loans usually offer a better interest rate if you have to instantly borrow a large sum of money. On the other hand, unsecured loans are more difficult to get. Banks usually provide unsecured loans to their customers with good credit history and steady income. Since an unsecured loan is high-risk for banks, borrowers get a higher interest rate and less flexibility.

Types of Bad Credit Loans

There are several types of bad credit loans that you can consider. The most important thing is to understand what each kind of loan offers and what to expect. Here are a few popular bad credit loans:

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1. Credit Unions

Credit Unions are not-for-profit organizations that offer loans to their members. Credit unions usually provide lower interest rates than banks. The maximum rate of interest that credit unions can charge is 18%, which is much lower than other alternatives. A credit union is more likely to look beyond poor credit history and consider the credibility and character of the borrower to make a judgment. There are different credit unions for different groups of employees. For instance, veterans can approach PenFed Credit Union and Navy Federal Credit Union. Similarly, teachers can turn to State Employees Credit Union in emergencies. An important point to note is you need to be a member of the credit union at least for a month before you can borrow.

2. Payday Loans

People choose Payday loans when they are out of options. You can get quick funding through Payday loans if you have bad credit. Payday loans are typically short-term loans for small debts. However, they are not ideal because the interest rate can be as high as 400%. They are probably the most expensive loans. So, choose these loans only if you have no other way.

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3. Car Title Loans

As the name suggests, car title loans are made against your vehicle. It is a good option if you need an instant loan but have a bad credit history. The loan is secured against the title of your car. It doesn’t require thorough financial checks and good credit history. You can immediately borrow a lump sum of money depending on the market value of your vehicle. You can quickly secure such loans within days if you own the car. Usually, lenders loan you 50% of your car’s value, but it differs from lender to lender. You can get car title loans for varying term lengths, ranging from a couple of months to three years. Some lenders offer low and competitive interest rates with high flexibility of repayment. The downside of car title loans is you will lose your vehicle if you default.

4. Credit Card Cash Advance

You can get a credit card cash advance to get a loan on your line of credit. If you urgently need cash, you get funded instantly using a credit card advance. This is a relatively simple method – you just need to withdraw money from an ATM or bank using your credit card. You can pay back the loan as a part of your credit card payment. However, credit card companies usually charge an excessive interest rate (higher than the purchase interest rate) and a fee (3-5%) to issue such cash advance. Additionally, there is no grace period, i.e., you are charged interest from the day you withdraw your cash.

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The above-discussed methods are some of the most common ways to raise funds in financial emergencies. However, this is not an all-comprehensive list. These days, there are many alternative methods like peer-to-peer lending, home equity loans, online lending, etc. You should choose the loan depending on your needs and long-term financial situation. Just remember to pay back on time.

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