When you have poor credit, your options to get money can seem very limited. You’re often denied a loan by traditional lenders because you’re deemed to be too much of a risk. This can leave you desperate to get money and you may be considering cash loans with bad credit as a method to overcome your debts.
As tempting as they might be, taking out a cash loan, also called a payday loan, is a serious gamble. Of all the different sectors in the lending industry, payday and cash loans contain the highest number of shady dealers. These are people who want to trap you in debt and are very clever in how they go about it.
If you’re looking for money and you don’t have a good credit score, a bad credit loan is a better option by far. Below we’ll discuss some critical things you need to think about with any loan, and list six key advantages that bad credit loans have over cash loans.
What’s Most Important in a Loan?
No matter what kind of loan you take out, there are some basic factors that you always need to consider. These will apply to every type of loan in one way or another. They include:
- Interest rates
- The APR applied
- The repayment timeline
- The amount you can borrow
- The time it takes to get your money
- Any associated fees
Now that you know these six important factors, we’ll compare each between bad credit loans versus cash loans and see how they measure against each other.
1. Interest Rates Are Lower
The interest rate refers to the amount that is added to your loan. In essence, it’s the amount that you’re charged for being allowed access to the money. The advantage in terms of interest rates definitely goes to bad credit loans, as you’ll see below.
With Cash Loans
CNBC reported that interest rates for cash loans extend anywhere from 300 to 400%. To put that in terms of dollars, you’d be paying $150 to take out a $50 loan at 300% interest. In total, you’re already paying $200 on your loan and that’s without factoring in other fees.
With Bad Credit Loans
CNBC also reported that the average interest rate for a bad credit loan ranged between 4% and 18%. The $50 loan in the last example would now only cost $59 before fees, even with a high end 18% interest rate.
2. The APR Applied is Far Less
Many people don’t know what APR means or think that it’s the same as an interest rate. An Annual Percentage Rate, or APR, is the combined average that you pay in a year after combining both the interest rate and fees on a loan. It is a much better indicator of the true cost of a loan than an interest rate is.
With Cash Loans
The Consumer Financial Protection Bureau reported that the average APR for a cash loan is around 400%. If you took out $100, you’d be paying $400 just in interest and fees back on the loan, plus the principle, for a total of $500.
With Bad Credit Loans
Experian reports that the APR for a bad credit loan averages around 36%. Your $100 loan would cost $136 in total.
3. You Have More Time to Repay the Loan
The amount of time you’re given to repay is where bad credit loans really win out, and why cash loans carry such great risk.
With Cash Loans
The average time to repay a cash loan is between two and four weeks. With higher interest rates and high APRs applied, this is nowhere near enough time to repay a loan. Typically, payday lenders want you to miss your payment. They can then offer to extend your payment timeline by four weeks after adding additional fees and interest. This is how they trap people.
With Bad Credit Loans
Bad credit loans typically offer between one to five years to repay the loan. This helps keep your monthly payments low, especially compared with payday loans. In some cases, there are also options for refinancing, if you need to.
4. You Can Borrow More Money
Cash loans don’t like taking excessive risk, so they keep the amount they’ll let you borrow relatively low. Normally, it’s only enough to cover one or two bills at most.
With Cash Loans
Normally, cash loans will only extend about $500 at most to their borrowers.
With Bad Credit Loans
Bad credit loans cover a much wider spectrum in the amount they’ll lend you. They cover anywhere from a few hundred dollars to as much as $70,000 on average.
5. The Time it Takes to Get Your Money
To be perfectly honest, bad credit loans don’t enjoy a great advantage over cash loans here. Both can get you your money very quickly. The only advantage bad credit loans enjoy here is the reduced risk compared to cash loans.
With Cash Loans
Most cash lenders can approve your loan the same day you apply and have your money to you by the following business day.
With Bad Credit Loans
You can potentially have your loan approved the same day you apply, but this isn’t guaranteed. It can take anywhere from 24 hours to one week to receive your funds.
6. You Don’t Pay Upfront Fees
A quality bad credit lender will never ask you to pay any money upfront. Any additional fees associated with your loan will either be paid only once you’ve agreed to the loan or rolled up into your repayment plan.
With Cash Loans
Cash loans often ask for you to pay associated fees to either process or else secure your loan. Consumer.gov indicated that the average cost you’ll have to pay is about $75, on top of your interest and principal.
With Bad Credit Loans
Bad credit loans also have fees associated, but you should never have to pay these fees up front. Processing fees, document preparation fees, and underwriting fees are some typical examples that you may encounter. These range anywhere from $10 to $100 each but are non-recurring.