Sometimes, we get into serious financial binds. Bills are due and you don’t have the money, or there’s an emergency and you need cash immediately to deal with it. You could be under threat of being evicted or foreclosed on. Life sometimes hits all at once and we might be tempted to turn to the easiest source of cash: payday loans. Payday loans are bad for your finances. Here are some payday loan alternatives.
Of course, most people know how bad payday loans are. They charge astronomical interest rates and demand payment (plus interest, plus fees) quickly. Many payday lenders don’t even do a credit check: they verify your employment and that’s all they need to give you the cash. Payday loans are targeted at the most vulnerable who are expected to pay dearly for their situation.
But there are better ways to get cash than payday loans, even if you have bad credit. Here are some good payday loan alternatives.
Best Payday Loan Alternatives
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Peer to Peer Lending
Peer to peer lending is a relatively new trend which was kickstarted by organizations looking to figure out how to provide funding for small businesses that cannot otherwise get funds. The way it works is that individuals put up money for others to borrow, then those funds are pooled and lent out to those who need the funds. They then pay the loan back, with interest, and the individual who lent the money gets their money back along with a percentage of the interest accrued.
Companies such as Peerform and Lending Club offer peer-to-peer loans for those who need them for a variety of purposes. They could be a good alternative to payday loans. However, your credit score will still affect the kinds of loans you can get. Interest rates tend to be high.
Credit Card Cash Advance
If you have a usable credit card, you can get a cash advance by going to an ATM and using your credit card to withdraw money.
Interest rates are slightly higher on credit card cash advances than on regular credit card purchases, and these cash advances may also have other fees associated with them. However, this is far cheaper than a payday loan. Interest rates range from 15-30%, depending on the card.
Personal Loan from a Credit Union
Large banks offer personal loans to those who qualify, but did you know that credit unions can sometimes have better interest rates and lower requirements? Many credit unions make a large amount of revenue from personal loans and will promote them heavily. You can even get special deals on personal loans if you ask!
Interest rates are lower than credit card cash advances, and personal loans may not be available to those with no credit history.
Help from Family/Friends
This might be difficult, and it’s a last resort for many, but if you’re truly in a financial bind, try calling in a favor. You might be able to get the relief you need with some help from friends or family.
Of course, don’t overuse these favors and don’t take them for granted. Other people have money problems as well, and if you don’t pay them back, it could cause problems down the road.
If you’re at the end of your rope, there are still better ways to come up with cash than a payday loan. If you owe utilities, try negotiating with the utilities company to see if you can pay your bills on a payment plan. If you owe rent, ask your landlord if you could pay at a later date.
You may also be able to refinance, consolidate, or negotiate payment plans on debts you owe. For many people, student loan refinancing is a popular way to pay less per month on student loans. If you can’t do that, try and negotiate a forbearance on outstanding loans.
Do your best to avoid turning to payday loans. In many cases, it’s better to take the hit to your credit score than to get trapped in a debt spiral with payday loans.
Why did House Prices Go Up in 2020 During the Pandemic
The pandemic brought with it a lot of surprises, one of them being the rise in house prices. The US economy plummeted with millions of Americans finding themselves out of work and without food. No one would have predicted that at the time when times were hard for everyone, home prices would become overheated, mortgage rates would skyrocket, and the supply for houses would not meet the demands and consumer confidence in the housing market was reducing. The housing market was booming.
Right at the beginning of the pandemic, no one was willing to buy a house or even sell one. This was because of the uncertainties of the time brought about by Covid-19. In a span of a few months, most day-to-day activities were confined to the available properties. Houses became a key asset and prices began to rise.
The US real estate market in context
The American real estate market suffered a huge blow as a result of the 2008 financial crisis. The recession saw the prices of houses fall by a big margin and the world’s largest real estate market was affected in ways no one would have imagined. This was as a result of subprime mortgages that were given in large numbers to help as many Americans as possible to become homeowners. Homeowners found themselves mortgages that were higher than the value of their houses. By 2013, the market was showing signs of recovery. From 2018 to 2019, the market began to fall slightly.
For many Americans, owning a home is very important to them as it allows them to build up their wealth, make it easy for them to access credit, and be able to save more as they no longer have to pay rent. A large percentage of homeowners rely on mortgages to acquire homes after raising the down payment from their savings or with money from their families. It was expected that the pandemic would lead to foreclosures especially since the economy took a downward spiral at the start of the pandemic. Many people also lost their source of income and were unable to keep up with their mortgage payments.
The most expensive real estate in the USA is found in San Francisco, California. San Francisco has a booming economy fueled by the presence of tech companies like Apple, Facebook, Intel, and Tesla that have their headquarters in the nearby Silicon Valley. The city also has been at the forefront in matters progressive culture which attracts more people to relocate to it. As a result of the thriving tech economy that brings billions of dollars into the city, and rising housing demand, the city is the most expensive place to buy a house in the US. On average, the price per square foot is $1,100.
Why do house prices go up in general?
The value of a house is usually expected to depend on the demand for living in a particular area, but things like recessions and pandemics are known to have an impact that can either be positive or negative. House prices go up when the supply does not meet the demand. One of the key factors that affect the supply has to do with the regulations that restrict the number of housing units that can be built. For example in a single-family zone, it’s illegal to build townhouses or apartments, or condos on any spaces designated for single units and parking minimums must be met. This forces contractors to make provisions for parking spaces even in places where it’s unwarranted.
Some local governments allow groups of people to block developments they feel will have a negative impact on the overall value of the entire estate. These local zoning regulations are making it impossible for most Americans to move to better estates due to the shortage of housing.
Why did house prices go up during the pandemic?
The price for houses is determined by the existing demand and supply dynamics. The fewer the number of houses available, the higher the prices for the available units would be. If the number of buyers is fewer, then the house prices would be lower. The prices went up because the pandemic affected both supply and demand. A lot of people were in a rush to take advantage of the falling mortgage rates which made it easier to acquire homes at a cheaper price.
As a result of the falling mortgage rates, houses were not staying on the market for long. Among those who bought the homes were first-time homebuyers or those who were buying a second home. These put a lot of pressure on the market as were not putting another home on the market as they took one out of it. In some instances, others chose to refinance their mortgages based on the lower rates instead of acquiring a new home.
Because of the pandemic, people who had plans of listing their homes did not do so and those who had listed their homes took them off the market. As a result of the social distancing rules at the height of the pandemic, not many people were willing to show their houses.
Home developers did not anticipate a surge in the demand for housing during the pandemic. A number of them had let go of their employees and had shut down. At the same time, prices for materials like lumber also added to the construction costs alongside the scarcity of skilled workers.
Examining How Negative Items Impact Your Credit
There are undoubtedly numerous factors that can have a negative impact on one’s credit score. If you’re concerned about what affects your credit or are attempting to maintain a healthy score, it’s beneficial to understand which items on your credit report have the greatest effect on your credit.
Below, we’ve highlighted four potential causes of the largest drop in one’s score. Additionally, we have included the average point one can lose for each item.
What Is the Impact of Bankruptcy on your FICO Score?
The higher your initial credit score, the more points you will lose for declaring bankruptcy. If you have a credit score of 680, filing for bankruptcy will result in a 130-150 point drop in your score. Bankruptcy will cost a person with a 780 credit score 220-240 points.
How Much Does Bankruptcy Impact Your Credit Score?
According to FICO, a foreclosure will reduce your credit score by an average of 85 to 105 points if your credit score is 680. If you have an excellent credit score of 780, a foreclosure will reduce it by 140 to 160 points. This means the higher your credit score, the more adversely affected it will be.
What Is the Impact of a Late Payment on Your Credit Score?
A single late payment may have a greater impact on higher credit scores. According to FICO data, a 30-day delinquency can result in a 90- to 110-point decline in a consumer’s FICO score of 780 who has never missed a payment on any credit account.
How Much Does Vehicle Repossession Impact Your Credit Score?
Repossession of your vehicle can have a catastrophic impact on your credit score. In some cases, you can see a whopping 100-point drop in your credit score. And, according to myFICO.com, late payments, collections, and public records all remain on your credit report for approximately seven years.
While the above issues are unavoidable for the majority of people, in certain circumstances, depending on your financial situation, you may have a choice. If you are drowning in debt and contemplating bankruptcy, for example, you may want to consider several factors first. If your credit score is already low as a result of late payments, a high debt-to-income ratio, and delinquent accounts, you may be able to improve it faster by filing for bankruptcy, as it will have a smaller impact on your score but will provide you with the fresh start necessary to begin rebuilding your credit.
What is the Highest Credit Score You Can Actually Attain?
On commonly used credit score models, the highest credit score you can have is an 850. Few people achieve this financial feat because it takes time and consistent credit-building habits. Scores fluctuate as new information is added to your credit reports, so achieving a perfect credit score is likely to be a fleeting achievement if you do achieve it.
Credit scoring models come in a variety of flavors. FICO 8 and VantageScore 3.0 are the most commonly used credit score models, with scores ranging from 300 to 850.
What Are the Odds of Having a Perfect Credit Score?
It is more difficult than you think to achieve a perfect credit score of 850. In the United States, only 1.2 percent of FICO scores are currently at 850. That’s not a lot of people. How does that compare to the majority of Americans? Experian reports that the average FICO credit score in 2020 was 711, which is considered a good credit score.
Why a Perfect Credit Score Isn’t Necessary
Perhaps the pursuit of a perfect credit score is noble, but achieving an 850 score does little to help you when compared to other exceptional credit scores.
One of the primary reasons to improve your credit score is to save money on interest rates. However, most lenders do not offer lower interest rates for having the highest credit score on a scoring model. When determining your creditworthiness, a lender sees little difference between an 800 and an 850.
If you aim for a credit score in the 800 to 850 range, which FICO considers “exceptional,” you’ll have access to the market’s most competitive rates.
How Is Your Credit Score Determined?
FICO and VantageScores both use the same five factors to calculate your credit score, but they do so in different ways. Your credit score is comprised of five factors:
- History of payments
- Credit utilization
- Credit history length
- Credit allocation (types of accounts)
- Accounts with new credit
Each factor has an impact on your credit score, though some have a greater impact than others. Regardless, they must all be considered and tracked.
What You Can Do to Raise Your Credit Score
There are steps you can take right now to improve your credit score. Following these steps will not only help you improve your credit score, but you will also have a better understanding of your credit and personal finances in general.
Make On-Time Payments on Your Bills
Do yourself a favor and pay your bills on time every month. Late payments can be reported to the credit bureaus for up to seven years. Setting up automatic monthly payments, either through the vendor or your bank, is an easy way to remember to pay your bills on time.
Credit Utilization accounts for 30% of your FICO credit score. Reducing your debt can help you improve your credit score over time. Make more than the minimum payment required, or make multiple payments each month, to gradually reduce your total debt.
Boost Your Credit Limits
You can also reduce your credit utilization by requesting a credit limit increase from your credit card company. Keep in mind that this may necessitate a hard credit inquiry, which may temporarily lower your credit score.
You can always ask the creditor if you can increase your limit without going through that step. Some credit card companies may be willing to work with you, particularly if your income has increased since you opened the account.
Use Credit Wisely
Maintain low credit card and other revolving credit account balances. Also, only open new credit accounts when absolutely necessary. Although your credit mix influences your credit score, adding a new credit account type is unlikely to improve your score.
Maintain Your Credit Cards
The age of your credit is important. If you don’t want to use your credit cards, don’t cancel your account, especially if you’ve had it open for several years. This could significantly reduce your credit age. Instead, keep the unused credit cards in a secure location until you need them.
Examine Your Credit Reports
Checking your credit report may not appear to be a proactive way to improve your credit score. However, according to a 2020 Consumer Financial Protection Bureau (CFPB) report, 59 percent of consumer complaints were about credit or consumer reporting. Of the 319,300 consumer complaints, 68 percent were about incorrect information on credit reports.
Mistakes on your credit report may be lowering your credit score. Errors can be as minor as incorrect personal information or as serious as duplicate, outdated, or missing credit accounts.
AnnualCreditReport.com allows you to obtain a copy of your credit report from the three major credit bureaus once every 12 months. You can now access your reports weekly until April 20, 2022.
If you discover errors on your credit reports, contact the credit reporting agency right away to file a dispute. Credit reporting agencies are required to investigate and respond within 30 days, on average.
Make use of a Credit Monitoring Service.
Another way to keep track of your credit score is to use a credit monitoring service. The best credit monitoring services provide you with access to your credit score as well as other useful features such as identity theft protection and access to credit reports.
Some credit monitoring services are free to use, while others require a monthly or annual subscription fee. Most services provide a mobile app that allows you to access your score from anywhere in the world at any time.
Experian Can Help You Improve Your Credit
Experian is not only one of the three major credit bureaus, but it also provides a free service called Experian Boost that can help you improve your credit score. Experian Boost builds your credit history by utilizing other recurring bills such as utilities, phone and internet services, and Netflix. There is no guarantee that your credit score will improve, but the average FICO score increase for those who did see a credit score improvement was 12 points. The process takes less than 10 minutes, which is a reasonable time investment for a significant credit score boost.
Credit scores are important in financial health, and a higher score opens up more options, particularly when making large financial commitments such as purchasing a home or taking out a loan. Aiming for a perfect credit score is a lofty but attainable goal. Instead, work to improve your score over time so that you can capitalize on it.
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