Signature loans versus payday loans
If you are in need of quick cash, you have a few options. Signature loans, home equity loans, and payday loans are often used by people needing some quick cash. People normally look at signature loans and payday loans as their last option for desperate cash. If you are truly in a bind, they can be the solution you are looking for. Here is a brief overview about payday loans and signature loans:
Understanding Payday Loans
A payday loan is really your last resort for some quick cash. It is a short-term loan that allows you to borrow against your future paycheck. A payday loan is normally used to help you cover your expenses until your next paycheck. Payday loans are really a cash advance with a large interest rate. You have probably seen television advertisements for payday loans, they are one of the best options out there for people with poor credit scores that are in need of some quick cash. You will provide the lender with a postdated check that will be cashed on the specified date. The check will be made out for the full amount you borrowed plus the interest fees. You have the option of returning to the store and paying the amount in full in cash so they do not cash your check. Most payday loans are 2 weeks long. The interest you pay will be upwards of 300 percent.
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If you don't have enough money in your checking account to pay back the loan plus the fees, you are looking at a bounced check fee and additional fees from the lender. Most lenders will treat this as a failure to pay and they will increase your interest rate. This can really ding your credit score if you fail to pay because the lender will report it to the credit bureaus. Whenever you have a late payment, you will see your credit score drop by 50 points or more.
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If you have bad credit and you are desperate for some quick cash, you may be stuck between a rock and a hard place. Most lenders won't give you the time of day if you have a bad credit score. The lenders that do want to approve you for a loan want to give you a higher interest rate, sometimes above 30 percent. What can you do if you have bad credit and you need a loan? First and foremost, get a job. Lenders want to see at least 2 years of employment history on your credit report. They also do not like to give loans to individuals that are self-employed because they are considered a higher risk. Second, try offering something as collateral. Do you have a nice car you can use to secure your loan? What about a condo or your home? Some lenders will even use your retirement account as collateral to obtain the loan. Third, find a close friend or family member to co-sign the loan. If you are certain you can stay on top of paying the money back, ask someone you trust to co-sign. You need to be faithful to your word and pay back the money in full and on-time. One missed payment can make the lender go after the co-signer. This can damage your relationship with this person because it can hurt their credit rating also. Fourth, cut up your credit cards and start paying off your debts. If you don't have access to your credit cards, you won't use them and it will be much easier to pay off your debt when you aren't adding to it. Your credit score will start to rise as you slowly chip away at your debt. In order to have good credit, you should never use more than 50 percent of the total balance of your credit cards. Try to avoid carrying more than 30 percent of the balance at any time. Fifth, search for lenders that help people with bad credit. Even though you will get higher interest rates, there are some lenders out there that really do want to help. They can help you get a loan that fits your monthly income and payment obligations and it can help you slowly gain control of your finances. |
In order to obtain a payday loan, you need to provide the lender with recent pay stubs and a copy if your bank statement. You have to prove to the lender that you have a steady source of income, which is why they may ask to see financial documentation for 3 months prior to that date. If you do not have the time to walk into a lender's office, look around for some online companies. You will need to fill out an online application and then fax in copies of your pay stubs and bank statements. Make sure the lender is legitimate and that the web site is secured because you will be submitting your social security number and other personal information over the internet. If you are approved for the loan, the lender will directly deposit the funds into your checking account. The money you owe will then be automatically withdrawn on your next payday.
Some people really like payday loans because they can pay off the money they owe and then immediately pull it out again, this is called loan flipping. You will need to pay off the interest fees each time you flip your loan, so you really are losing money. Several states have banned the practice of loan flipping, so be sure to ask the lender if it is illegal in your state.
Most lenders will give you the option of having a payment plan. You can either walk into their office and pay back the full amount on your next payday or you can pay off a certain percentage and then sign up for monthly or weekly payments. Keep in mind that the interest rates are extremely high, so it is not a smart decision to opt for a payment plan.
If you are against credit cards and signature loans, a payday loan is your only option. If you cannot qualify for any other type of loan, you may have to use a payday loan for quick cash. Lenders are eager to get you to sign up for a payday loan because they make a hefty profit. They will be able to deposit the money into your account within 24 hours and you do not have to go through a lengthy credit approval process.
Only use a payday loan in an emergency, do not use it like a credit card or a personal loan. If you get into the habit of using payday loans often, you will start to have a harder time making your monthly payment obligations and you will fall behind on your payments to the lender.
Understanding Signature Loans
A lot of people turn to signature loans when they are in desperate need of cash. If you are renting your home, you do not have the option of using a home equity loan for quick cash. Besides credit cards, signature loans are really your only option. A signature loan is often called a personal loan or an unsecured loan. When you obtain a signature loan, the lender is assuming a large risk. To combat the risk, they will charge you outlandish interest rates and fees. If you are in a bad situation, a signature loan will help you out, but only if you use the money responsibly.
Most people use a signature loan as a debt consolidation method. They decide to pay off their high interest rate credit cards or transfer over some other loan amounts. It is nice to have all your payments rolled into a single monthly payment, but how much money are you paying to the company in interest? If the interest rate is higher than your current loan interest rates, you might as well hand over a lump of cash to the signature loan lender. You are just going to waste money by transferring the debt to a higher interest rate loan.
You really don't need to have a lot to obtain a signature loan, just your signature. Lenders will pull a copy of your credit report and they will take a look at your past payment history, your debt-to-income ratio, and your credit score. Even if you have a mediocre score, say 630, you could still be approved for a signature loan. Depending upon the lender, you may need to provide them with additional information like a copy of your recent bank statement and pay stubs. The lender will even call up your current employer to verify your employment.
Individuals with a higher credit score are able to get approved for a larger amount and they will get better interest rates. If you decide to front some collateral to secure the loan, you will get an even lower interest rate. Since most signature loans are unsecured, you will not need to front anything as collateral. If you are worried about your credit score and the interest rates you will get, ask someone with a good credit score to be your co-signer. This person will need to trust in your ability to repay the loan or else they will be stuck with the payments. A co-signer that has a high credit score can qualify for lower interest rates and this can save you thousands of dollars over the life of the loan.
The nice option you have with a signature loan is the ability to restructure it over time. Let's say you obtained a signature loan 3 years ago for $8,000. For the past 3 years you have never missed a payment and you have been paying a higher amount than the minimum amount due. Now, you are suddenly involved in a car accident and you need $2,000 to pay for the repairs. What if you don't have this money and you do not have another option to get to work? Contact your lender to see if you can get approved for more money. As long as you have a good credit score and you have been a good borrower, the lender will probably give you the money and restructure your loan. This will mean you are going to be in debt an extra year or two, but at least you have the money to pay for your expensive car repairs.
Some lenders have tightened their approval process and it can be hard to get a signature loan if you do not meet their qualifications. Ask for a free quote from 2 or 3 different lenders and do not allow them to pull your credit report. If you know your credit score, tell them what it is. Most lenders can give you a rough estimate over the phone. Once you have a few estimates to look over, allow the lender access to your credit report and let them start processing the loan.
Always proceed with caution when you are considering any type of loan. If you have had financial problems in the past, a payday loan and a signature loan can worsen your situation. Instead of bailing you out of debt, it will increase your debt with higher interest rates. Learn how to control your spending so you have enough money in the savings account to cover your quick cash needs.
