Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions. This week’s episode starts with a discussion about how to help small, local businesses, which have been hit
Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions.
This week’s episode starts with a discussion about how to help small, local businesses, which have been hit much harder by the pandemic than the big online shopping sites. One way is to seek out local sources for products you might otherwise buy from the online megastore. Another is to order directly from local restaurants rather than using delivery apps. If money is tight, a social media shoutout or five-star review can help others discover local gems.
Then we pivot to this week’s question from Michelle. She says, ‘I recently got into a fender-bender that left the back of my car pretty messed up. It still drives, but one of the doors doesn’t open, and a window is cracked. I want to get it fixed, but I don’t have enough cash to cover the repair. I’m thinking of getting a small loan, but I don’t have great credit. What do you think would be the smart thing to do?’
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Many people aren’t prepared for unexpected expenses, including car repairs. If they don’t have savings or good credit, a so-called ‘small-dollar loan’ may seem like a good option.
Small-dollar loans are usually for amounts of $2,500 or less. Banks, credit unions and reputable online lenders typically don’t make loans this small, so people often turn to payday lenders or unsavory online outfits. Interest rates can be extremely high and you may have only days or weeks to pay off the loan, increasing the chances you’ll have to renew the loan or borrow elsewhere to pay it off. This is known as a debt trap.
Some credit unions offer ‘payday alternative loans’ that allow people to borrow small amounts at reasonable interest rates. Borrowers can pay off the balance over 6 to 12 months, reducing the chances they’ll have to borrow again.
Michelle’s car is still drivable, so she may have time to save up the cash she needs. If not, she has time to check with local credit unions to see if any offer these alternative loans. A co-signer also could help her get a loan at a reasonable interest rate, or she could look for lenders willing to make secured loans ” personal loans backed by an asset, such as a car or home ” at a reasonable rate.
Explore your options. You may be able to borrow from your local credit union, or from family and friends.
Bad credit equals higher rates. If your credit isn’t great, you may be able to qualify for a lower rate by getting a co-signer or a secured loan backed by an asset you own, such as a house or a car.
Know the risks. Some small-dollar loans, including payday loans, can carry astronomically high interest rates, which can lead to a cycle of debt.
Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected] To hear previous episodes, return to the podcast homepage.
Liz Weston: Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I’m Liz Weston.
Sean Pyles: And I’m Sean Pyles. As always, be sure to send us your money questions, call or text us on the nerd hotline at (901) 730-6373, that’s (901) 703-NERD, or email us at [email protected] I am continually impressed by how insightful and smart all of your questions are, so please keep them coming, and we will keep answering them.
Liz: Also, hit that subscribe button if you want more Nerdy goodness delivered to your device every Monday. And if you like what you hear, please leave us a review. On this episode, Sean and I discuss small-dollar loans, their uses, risks and alternatives. But first, in our This Week and Your Money segment, we’re talking about how to help local businesses stay afloat during the pandemic.
Sean: This has been something I’ve been thinking about since the pandemic began and everything shut down. One, as I talked about a couple of weeks back, I was doing some impulse shopping and I was trying to see how I could make that be more productive for my local economy and help smaller businesses. But what recently got me thinking about this as well is that there was an article I read in The New York Times that found that a third of all of the small businesses in New York City may never reopen. That was according to a report by the Partnership for New York City, a business group. So that’s really staggering if you think about how many local shops you go to for a cute houseplant or a cup of coffee or clothes for your kid ” all of these places that you know the owners and you rely on their specialty goods for. A third of them being gone is heartbreaking, and there are things that we can do to make sure that some of them survive.
Liz: And one of the things you should think about is which businesses do you want to be able to go to when this is all over. Those maybe are the ones that you target. But overall, your local economy is going to be stronger, the more money that you can spend locally. When you spend with local businesses, more of the money stays in your community and helps people that you know, and also helps you because these businesses survive.
Sean: Right, and then they end up paying taxes and that goes to your city government, and that helps pave the streets and keep the lights on the road, and it keeps your bridges working as bridges should. All of these important things, and again, local is really where you can make the most impact, whether it’s in an election or in an economy.
Liz: I recently wrote a column after interviewing the behavioral economist, Dan Ariely, and he and his colleagues are doing something I thought was really cool. There’s 50 of them at the lab where they work, and they basically pick a local business and every week each of them spends $100 there. And that’s $5,000, which wouldn’t be a drop in the bucket to the bigger stores, but it could be enough to keep a smaller place going. And I mean, you don’t have to do this by spending $100 every week. But if you can talk to some of your coworkers or your friends and neighbors, and pick a different company or a different local business every week and put some money there, that could keep them going until the pandemic is over.
Sean: I really love that idea because that way you ensure that you’re getting money into your local economy, helping a smaller business right in your area. I found one way to do that that isn’t as expensive for some people who maybe don’t have $100 to spend. One way was kind of a pay-it-forward gift card option where you buy a $10 gift card for a friend for a local store, and then you encourage them to do the same for someone else, And $10 is enough where you can get something small, like a succulent from your local plant store or a face mask from a local craft store. And then someone else can do that as well. So you keep supporting other smaller businesses while also connecting with your friends, which is really hard to do right now as well, so it’s a win-win in different areas.
Liz: That’s a great idea. Another thing I like to do is frequent our farmer’s market, ” and not just because there’s always celebrity sightings there, I live in Los Angeles, that’s part of it. Sometimes smashing into a paparazzi is the first indication I have that anybody famous is standing next to me. But anyway, farmer’s markets, obviously, these are all local farmers ” this is money, again, that stays in your community. And you tend to have, at least the ones I’ve been to, there’s a pretty wide variety of stuff that you can buy. It’s not just food. It can be crafts, it can be clothes, so that’s something to check out.
Sean: Yeah. I think one thing that has been really helpful for me when trying to shop local is thinking about one, all of the new things that we have to buy in this pandemic economy, like hand sanitizer or face masks, and then thinking about the ways that local companies have been adapting to fill those needs. Obviously, people know that in Portland, we have tons of breweries and distilleries and we can’t really go to them in the same way we could before. But a lot of them are actually making hand sanitizer now that you can purchase from them, so even though I’m not going to my favorite brewpub for a beer the way I would have maybe 12 months ago, but I can get hand sanitizer from them. So that way I’m filling a need that I have while also supporting a company that I know I want to support, but can’t in the way I would want to.
Liz: That is so cool.
Sean: Yeah, and a lot of times they come in the alcohol bottles, which makes it even more fun in a way.
Liz: Ah, I love that, I love that.
Sean: Yeah, yeah.
Liz: And that’s a great gift, by the way. Hint, hint.
Sean: Yeah, and even for places that aren’t local in your community, that you do want to support, there’s a really easy way that you can support them while avoiding directing your money to those big online stores. Say that you’re looking for a face mask and you found a little dealer that was either at Walmart or Amazon, somewhere online, and you didn’t really want to spend your money at that shop. Google the name of the company that is listed on that website, find their direct website, and then purchase whatever you’re going to get from them. That way you can ensure that all of your money is going to support a local business and not some mega-corporation that doesn’t need that money anyway.
Liz: That’s a great idea.
Sean: And even beyond spending money, it’s really easy to promote a local business after you have maybe already purchased something or you see something that you like online by sharing it on social media. I’ve seen a lot of people tweet out local businesses, especially as we’re trying to support more black-owned businesses. That’s been one of the key ways that I’ve been able to get connected with local businesses that I want to support that I didn’t even know existed.
Liz: Yeah, those kinds of shoutouts can make a huge difference. And also, you know, the business owner appreciates it.
Sean: Mm-hmm, and again, it’s free, free marketing, and you’re also making a difference in connecting with your network, too.
Liz: Yeah, and a lot of people right now are dealing with, money is really tight, so they don’t have a lot of extra to spread around, but that’s something that anybody can do to help out.
Sean: And one last thing I wanted to mention for people that are maybe buying takeout. I’ve been getting a decent amount of takeout lately since I can’t go to restaurants. I found that if you order directly from the restaurant, you don’t go through one of those apps that has it delivered to you. That way, you, again, you similarly make sure that all of the money that you’re spending is going directly to that company because, as we know, these apps take a big chunk of what you’re spending and put it in their pockets. And a lot of restaurants don’t even make that much, but they feel like they have to be on these servers to get any business at all. So if you want a pizza or there’s a really good pho place in my neighborhood, we just call them up. And yeah, I have to drive down the street to get the food, but it makes me feel better knowing that I’m supporting them and not some other company.
Liz: Oh, that is huge. I mean, I was using all those apps because they give you free delivery for a while, and I always like free. But then I started reading about how much of the dollar that you spend, they take, and a lot of times, the business is just barely breaking even. That doesn’t really help. So if you really want to help, call them directly.
Liz: All right, I think that about covers it, but I would love to hear our listeners’ ideas if they have some for how they support local businesses. So you can email us at [email protected] or send us a voice memo at the number we’ll say later. We’d love to hear what you think.
Sean: Yeah, please do. I know there’s always new ways to support local businesses, so please let us know what you’re doing so we can all make an impact together. Let’s get to this episode’s money question.
Liz: This episode’s money question is from Michelle. She says, ‘I recently got into a fender-bender that left the back of my car pretty messed up. It still drives, but one of the doors doesn’t open, and a window is cracked. I want to get it fixed, but I don’t have enough cash to cover the repair. I’m thinking of getting a small loan, but I don’t have great credit. What do you think would be the smart thing to do?”
Sean: Man, Michelle, that is a really tough place to be in. To help us talk through a few different small loan options on this episode of the podcast, we’re talking with Annie Millerbernd, a Nerd who knows a lot about small loans and ways to fund expenses like this.
Liz: All right, sounds good. Hey, Annie, welcome to the show.
Annie Millerbernd: Glad to be here. Thanks for having me.
Sean: Hey, Annie. Let me set you up here. Our listener Michelle needs to fix her car, but she’s short on cash and her credit is not great right now. She’s thinking of getting a small personal loan to cover the cost, but she’s not sure that is the smartest choice. So to start, can you explain what a small-dollar loan is and how it’s different from other kinds of loans?
Annie: Small-dollar loans are loans typically under $2,500. Usually, they’re a few hundred dollars to a few thousand dollars, and because they have the small amount, banks and reputable online lenders don’t typically offer them ” it’s hard for them to make them profitable. So instead, these payday lenders and unsavory online lenders will fill in the gap, and those lenders typically offer APRs that are super high with short repayment terms that make them difficult to repay on time.
Liz: Those short repayment terms ” talk about what those are and why they’re dangerous.
Annie: The short repayment terms, they can be two weeks, maybe more, maybe less. They’re usually around a month or under for payday lenders. Short repayment terms are risky because they make it difficult for a person to pay that loan back on time. So if you have a combination of a high APR and a short repayment term, you have to pay back a lot of money in a small amount of time. And that’s a difficult thing for a lot of people who need the small amount of money to do, so they end up having to basically get another loan to repay that loan on time.
Sean: And that’s what can create the cycle of debt, because if you had a hard time scrounging up a few hundred bucks for a car repair, chances are, in a few weeks when that loan is due, you’re going to have a hard time paying back that base amount, plus the APR, which can be upwards of 300%, right?
Annie: That’s right. They have exorbitant APRs and, like you said, the short repayment terms make it really difficult to pay back all of that extra money in addition to what you borrowed.
Liz: A lot of these loans don’t require credit checks, and I know some people think that that is a positive. But actually, that can be a negative, right, Annie?
Annie: Right, so if you’re a person who needs a small amount of cash or any amount under a thousand or a couple thousand dollars, you might think that maybe you don’t have great credit or maybe you don’t have any credit at all, and having a lender not look at that would be better for you. But actually, if a lender isn’t checking their credit and income and debt and basically assessing your ability to repay, then they aren’t probably basing the APR that you’re getting on your ability to repay.
Sean: And at the same time, if you want to improve your credit by having on-time payments on your credit report, these loans aren’t going to help you get there. So you’ll be responsible for an expensive loan, and then you also won’t be getting the benefit on your credit report of making on-time payments, so that doesn’t make you any better off at the end, either.
Annie: That’s right.
Liz: So, with all these disadvantages, though, we know a lot of people are in the situation where they don’t have access to, really, any substantial amount of money to take care of an emergency expense.
Sean: Right, but there are some alternatives to these riskier loans, ways to get some cash. Annie, can you talk about what a few of those might be?
Annie: Credit unions are one of the best options most people have for a small-dollar loan, and there are some requirements around membership for a credit union personal loan. But credit unions offer a small-dollar loan called ‘payday alternative loans,” and they’re far and few between, but these loans typically have amounts of less than $1,000 or $2,000 and they have longer repayment terms ” so one month to six or 12 months and APRs of 28% or lower, so that’s going to be your best option for a small loan. Small-dollar loans aren’t only from payday lenders and deceptive online lenders. That’s a really good option.
Liz: And Annie, I know that regulators were trying to get banks into this space to do these smaller dollar loans. Is that actually happening?
Annie: There used to be this suggested rate cap from the FDIC, which is the main regulator for banks, and the rate cap was at 36%. Earlier this year, the FDIC, with other regulators, issued some guidance that omitted that APR cap ” and that really was to encourage banks to start offering small-dollar loans to bring some competition to the small-dollar lending space. And there’s some research that says that banks could be well-positioned to offer these loans at sub-100% APRs while also having that existing consumer relationship where they can assess your ability to repay, and they can report your payments to credit bureaus.
Liz: Yeah, because that’s been the problem with payday loans is the lenders say they have to charge these outrageous amounts of interest because the lending isn’t profitable otherwise. They can’t do the kind of underwriting that a typical lender would do. But your bank already has all the information pretty much it needs to make these loans, right?
Annie: Yes, and banks would struggle to make a 36% APR on a $400 loan profitable. That’s not probably realistic is what some of the research says, so we’re looking at $50 to $60 on a $400 loan with a three-month repayment term which, according to some key research, consumers think would be a fair loan, and it is an APR of less than 100% that the bank can still make profitable.
Liz: OK. One of the things Michelle said is that her car is still drivable, which tells me that she has some time, so that if she does want to check out the credit union option, she has time to go online, to look for a credit union where she could be a member to sign up. She can do all those things and get a loan. That’s kind of different from an emergency situation where you need the money right now.
Sean: Annie, are there any other alternatives you think besides credit union loans that people should be aware of?
Annie: Yes. If you can borrow from a friend or family member, that’s going to be one of the safest options. Of course, it doesn’t help you build credit. But it is a way to ensure that you understand the terms of the loan and you have the opportunity to build in interest or whatever terms you and that person would like to. Of course, you’re securing it with your relationship with that person and if you don’t repay, you might get yourself in a tough spot in a personal matter.
Sean: Yeah. One really interesting idea for funding small dollar amounts are lending circles. So if you get together with maybe a dozen or so people in your local community and you each put in, let’s say like a hundred dollars every two weeks, and then at the end of the month, one person gets that pot of money and then you do it again next month and then you rotate who gets the money so that eventually everyone gets that pot of money. So, back to Michelle, let’s say Michelle doesn’t really have any options to get money from friends or family or a lending circle. I’m wondering what you think are the best ways to get a loan when you don’t have a great credit score?
Annie: Well, if you don’t have a great credit score, there are reputable online lenders that pair their product to bad- and fair-credit borrowers. These lenders might have higher APRs, but they do tend to stick to the 36% or lower range, which is helpful for consumers who are trying to build credit and want a reasonable repayment term. They typically have one year or longer repayment terms, so those are one of the better options if you don’t feel like you can turn to a bank or credit union for that kind of loan.
Another alternative would be to add a co-signer to your loan. Some banks and online lenders let people add co-signers, which is a person who has maybe a better credit profile, less debt and a higher income. And if you add a co-signer, not only could you get a loan that you might not otherwise qualify for, you might even get reasonable rates and a higher loan amount. The downside of adding a co-signer is that that person is essentially on the hook for the loan if you can’t repay it, and so their credit is also on the line when they co-sign your loan.
Sean: Is there one of these that you think would maybe be the best option or does it depend on your own individual circumstances?
Annie: It really depends on your individual circumstances. I would say if you can find a co-signer and the lender that you’re working with allows co-signers, that’s a really good option if you and the person you have that relationship with are both comfortable with it. You can also do a secured loan, which is typically using your car, certificate of deposit or your savings account. And those are good options, but you have to weigh the benefit of getting the loan with the potential cost of losing whatever it is you’re securing the loan with.
Liz: Yeah, you don’t want to put your car up as collateral if you need that car to get to work ” that could be a disaster.
Sean: One thing that seems like a really big draw with these loans is that people can get them fast, right, so I’m wondering, how fast exactly people could expect to get this money from the time they apply to the time the money is in their account?
Annie: That really varies. It depends on the lender you’re working with. It depends on if you’re using a bank, online lender, a community bank or a credit union. Some banks will say that they can do a loan the same day that you apply for it ” they could fund it as soon as the same day or the next business day, but more often I’ve seen it where large national banks will take a few days and up to a week. With online lenders, you have the option of fast funding often, so reputable online lenders pride themselves on being able to fund a loan really quickly after you apply for it, and you may pay for that with a higher rate. So be sure to compare your options between banks and online lenders and credit unions to find the lowest rate, and then determine whether the fast funding option is a priority.
Sean: OK, so I have one final question for you: Besides the obvious pitfall of potentially entering a cycle of debt if you get a really expensive loan, are there any other things you think that Michelle should be looking out for?
Annie: One of the things that she should look out for is her credit. Just be sure that wherever she’s looking for this loan, her credit will either come out the other side better, or at least not worse. If you get a loan from a reputable lender that does report your payments to credit bureaus, then what you’re doing is you’re getting your credit in better shape so that next time you have to turn to a personal loan or a credit card or some other credit product, you’re better positioned to get a lower rate. And the expense is a really important factor because even if your credit isn’t involved, if you get a very expensive loan and you end up having to repay that very quickly, you could slip into the cycle of debt that we talked about earlier.
Liz: Well, that was super helpful, Annie. Thank you for joining us today.
Annie: Thanks for having me.
Liz: With that, let’s get to our takeaway tips. First, explore your options. If you need cash in a pinch, ask family and friends before taking out a small-dollar loan. If you do need a loan, see what your local credit union offers, since they’ll likely have the best rates.
Sean: Next, if you have bad credit, understand your options. You might qualify for a loan, but it will likely have a higher interest rate. In that case, look into potentially co-signing with a trusted friend or family member, or look at a secured loan.
Liz: Finally, know the risks of small-dollar loans. Some, like payday loans, can carry astronomically high interest rates, which can lead to a cycle of debt.
Sean: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373, that’s (901) 730-NERD. You can also email us at [email protected] and visit nerdwallet.com/podcast for more info on this episode, and of course, remember to subscribe, rate and review us wherever you’re getting this podcast.
Liz: And here’s our brief disclaimer thoughtfully crafted by NerdWallet’s legal team: Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes, and may not apply to your specific circumstances.
Sean: And with that said, until next time, turn to the Nerds.
More From NerdWallet
6 Emergency Loans: Where to Get a Fast Loan How to Take a High-Interest Loan and Skip the Debt Cycle How to Take a High-Interest Loan and Skip the Debt Cycle
Liz Weston is a writer at NerdWallet. Email: [email protected] Twitter: @lizweston.
Sean Pyles is a writer at NerdWallet. Email: [email protected] Twitter: @SeanPyles.
What is a Credit Builder Loan and Where Do I Get One?
Your credit score plays an important role in your financial life. If you have good credit you can qualify for loans and borrow money at lower interest rates. If you don’t have a credit score or have poor credit, it can be hard to get loans and you’ll be forced to pay higher rates when you do qualify.
Building credit can be like a chicken and egg problem. If you have no credit or bad credit, you’ll have trouble getting a loan. At the same time, you need to get a loan so you have an opportunity to build credit.
What Is a Credit Builder Loan?
A credit builder loan is a special type of loan designed to help people who have poor or no credit improve their credit score.
In many ways, credit builder loans are less like loans and more like forced savings plans. When you get a credit builder loan, the lender places the money in a bank account that you can’t access. You then start receiving a monthly bill for the loan. As you make those payments, the lender reports that information to the credit bureaus, helping you build up a payment history. This improves your credit score.
Once you finish the payment plan, the lender will release the bank account to you and stop sending bills.
In the end, you’ll wind up with slightly less money than you paid overall, due to fees and interest charges. For example, let’s say you get a credit builder loan for $1,000, the lender may make you make a monthly payment of $90 each month for a year. After the year ends, you’ll get the $1,000 from the lender, but may pay $1,080 overall.
Why Get a Credit Builder Loan?
The main reason to get a credit builder loan is right in the name: They help you build your credit. If you don’t have any credit history or if you’ve damaged your credit by missing payments, it’s much easier to qualify for a credit builder loan than a traditional loan from a lender.
The companies offering credit builder loans take on almost no risk because they don’t give you the money until you’ve finished paying the loan, so they’re willing to approve people who have severely damaged credit.
Credit builder loans will help you build your credit history if you make your monthly payments, but you do have to pay fees and interest to do so. There are other ways to build credit that don’t require paying any money. For example, if you get a fee-free credit card and pay your balance in full each month, you’ll build credit without paying any interest or fees.
This makes credit builder loans best for people who have tried and failed to qualify for other loans and credit cards.
There is also some value in the forced savings provided by credit builder loans, but the interest and fees eat away at that savings. If saving is your goal, it’s best to use a different strategy to help you save, but if you want to save and build credit at the same time, a credit builder loan might be worth using.
Where to Find Credit Builder Loans?
There are many companies that offer credit builder loans. Each lender offers different loan terms, fees, and interest rates.
One of the top credit builder loan providers is Self. The company offers credit builder loans with payment plans as low as $25 per month, making it easy for almost anyone to afford a credit builder loan.
With Self, you can also qualify for a Visa credit card after you’ve made at least 3 payments on your credit builder loan and made $100 of progress toward paying off the loan. You can set your own credit limit, up toward the total amount of progress you’ve made on the loan.
The card doesn’t have any additional upfront costs and can help you gain experience with using a credit card. It can also help you build your credit by giving you another account to make payments on, providing you with more opportunities to build a good payment history.
What to Look for?
When you’re looking for credit builder loans, there are a few factors to consider.
The first thing to think about is the monthly payment. The point of a credit builder loan is to show the credit bureaus that you can make regular payments on your debts, which will help build your credit score. If a lender’s minimum payment is more than you can afford each month, you won’t be able to build your credit with that lender’s credit builder loan.
It’s also important to think about the cost of the loan. Credit builder loans often come with stiff fees and you also have to pay interest on the money you’ve borrowed, even if you don’t get access to it until you pay the loan off.
The fewer fees and the less interest you have to pay, the better. You should look very carefully at each lender’s fee structure to choose the best deal.
Finally, take some time to see how easy it is to qualify. While credit builder loans are targeted at people with bad credit, some lenders will still check your credit history and might deny your application.
If you have very bad credit, you might want to look for a lender that advertises credit builder loans with no credit check.
Alternatives to a Credit Builder Loan
Credit builder loans can be a good way to build credit for some people, but they come with interest charges and fees. There are other ways you can build credit worth considering. Some of them won’t cost any money, which may make them a better choice than a credit builder loan.
Secured Credit Cards
A secured credit card is a special type of credit card that is much easier to qualify for than a typical card.
With a secured card, you have to provide a security deposit when you open the account. The credit limit of your card will usually be equal to the deposit you provide. For example, if you want a $200 credit limit, you’ll have to give the card issuer $200 as collateral.
Because you give the lender cash to secure the card, it’s much easier to qualify for a secured credit card. The lender assumes almost no risk. Once you get the card, it works like any other credit card. You can use it to spend up to your credit limit and you’ll get a bill each month. If you pay the bill on time, you can build credit.
Many secured cards charge high interest rates and have hefty fees, but there are some fee-free options available. One great secured card is the Discover it Secured Credit Card, which has no annual fee and offers cash back rewards.
Become an Authorized User
Most credit card issuers let cardholders add other people as authorized users on their accounts. Authorized users get their own cards and can use them to spend money just like the main cardholder.
Some issuers will report account information to the credit reports of both the main cardholder and any authorized users. If you know someone that is willing to make you an authorized user on their credit card account, this may help you build your credit so you can qualify for a card of your own.
Not every issuer will report information to authorized users’ credit reports. It’s also worth keeping in mind that if you become an authorized user on a card and the cardholder stops making payments or racks up a huge balance, that will show up on your report as well, damaging your credit further. That can make this strategy risky.
Personal Loans with a Cosigner
Personal loans are highly flexible loans that you can use for almost any reason. If you need to borrow money, you can try to find someone who is willing to cosign on the loan. Having a cosigner can make it easier to qualify, even if you have poor credit, giving you a chance to build your credit score.
When someone cosigns on a loan, they’re promising to take responsibility for your debt if you stop making payments. Lenders will look at both your credit and your cosigner’s credit when you apply, so having a cosigner with strong credit can help you get the loan or reduce the interest rate of the loan.
Keep in mind that your cosigner is putting themselves at risk by cosigning on a loan. It’s even more important that you make your payments every month. If you don’t, your cosigner will have to pick up the slack.
Personal Loans without a Cosigner
Even if you have poor credit, you may be able to qualify for a personal loan designed for people that don’t have strong credit. Just keep in mind that you’ll have to pay higher fees and interest rates to compensate for your poor credit score.
If you’re looking for a personal loan and have poor credit, shopping around for the best deal becomes even more important. You can use a loan comparison site, like Fiona, to get quotes from multiple lenders so you can find the cheapest loan.
Related: Best Emergency Loans for Bad Credit
What Is the Difference Between a Credit-Builder Loan and a Personal Loan?
A personal loan is a type of loan that you can get for almost any reason, such as consolidating debts, starting a home improvement project, paying an unexpected bill, or even going on vacation. They’re offered by many lenders and banks.
A credit builder loan is less a loan and more a forced saving plan. When you get a credit builder loan, the lender doesn’t actually give you any money. Instead, it places the amount you’re borrowing in an account you can’t access. Once you finish paying the loan, the lender releases the money in that account to you.
Credit builder loans tend to be much easier to qualify for than personal loans because the lender doesn’t have to take on much risk. They’re mostly used by people who want to build or rebuild their credit score.
On the other hand, personal loans are less popular for building credit and more useful for providing funding when borrowers need cash to cover an expense.
Pros and Cons of a Credit Builder Loan
Before applying for a credit builder loan, consider these pros and cons.
- Easy to qualify for
- Helps you build savings
- Payments are usually small
- Helps you build payment history
- Not really a loan
- Fees and interest rates can be high
- There are cheaper alternatives to build credit
These are some of the most frequently asked questions about credit builder loans.
Like most loans, it is possible to repay a credit builder loan ahead of schedule, but there are a few downsides to consider. One is that many lenders add an early repayment fee to their loans, so you’ll have to pay that fee if you want to get out of the credit builder loan. The other is that repaying the loan early somewhat defeats the purpose. Each monthly payment you make toward the loan helps you build your credit. If you pay the loan off early, you’ll make fewer monthly payments, which means less improvement in your credit.
Missing a payment on a credit builder loan is like missing a payment on any loan. You’ll likely owe a late fee and it will damage your credit. This is one of the reasons it’s important to make sure you can afford the monthly payment before signing up for a credit builder loan. If you can’t make your payments, the loan will wind up damaging your credit instead of helping it.
Credit builder loans can be a good way to build or rebuild your credit, but they’re not your only option. They often involve paying fees and interest, so you should search around for the best deal or look for cheaper (or free) alternatives, such as secured credit cards.
How to lower your credit card interest rate and save money
Why pay high interest on your credit cards when you can simply bargain a lower rate? These tips can help you save big money on your bill.
CHARLOTTE, N.C. — A lot of people have struggled to pay their bills during the COVID-19 pandemic and many have turned to credit cards so they can kick the can down the road. Now the time has come to pay it down and some of the bills are eye-popping.
Did you know you can bargain that interest rate down and save quite a bit of money?
You could ask for a lower rate, but according to a new study, you can bargain down 10 percentage points. So, if your interest rate is 24%, it could mean paying 14% instead. That’s still high but it’s a lot better than 24% interest.
These numbers are staggering and can be a bit overwhelming. Americans have an average credit card balance of $5,300, totaling $807 billion across 506 million credit card accounts. Why are these numbers important? Because they want to keep you spending, which means you have leverage to bargain.
“It is absolutely possible to negotiate your rate down. In fact, your chances of doing so are better than you think they are. Close to 80% surveyed said they did just that,” Matt Schultz, an industry expert with LendingTree, said. “You can save serious money, especially if your balance is bigger.”
You have to try, and you have to keep trying, even if the lender says no. Take it higher to a manager and keep pushing. Drops of 10% are possible and that could save you hundreds, or maybe even thousands, of dollars.
“So, a lot of people have bad credit, some are thankful to have it at all. Is it possible for them too? Yes, absolutely it’s possible,” Schultz said. “Credit card companies are willing to talk with you because they want to keep your business. It benefits them to lower your rate to keep their card in your wallet.”
Paying down debt is liberating. Less debt is more buying power but you must advocate for yourself. If you don’t, the card companies are just as happy to take your money at the higher rate.
LendingTree offers these suggestions if you plan to ask for a lower rate:
How to ask for a lower APR
Before you make the call, come armed with ammunition in the form of other offers you’ve seen at a site like LendingTree.com or that you may have received in your snail mail. Take that offer and use it to frame the conversation:
“I’ve been a good customer of yours for a long time and I like my card. However, the APR is 25% and I’ve just been offered one with a 19% APR. Would you be able to match it?”
As survey data shows, they’ll likely be willing to work with you, at least to some degree.
How to ask for a waived annual fee
Before you make the call, think about what you will accept. If you ask for a fee to be waived altogether and they only offer to reduce it, is that good enough? What if they offer you extra rewards points or miles or make some other counteroffer instead of a reduced fee? And perhaps most important, what if they say no?
As with many negotiations, you have more leverage if you’re willing to walk away, so that could be an option. However, you shouldn’t make that threat unless you’re willing to follow through with it, and you shouldn’t follow through with it unless you’ve thought about what that would mean for your credit.
How to ask for a waived late fee
Just pick up the phone and be polite. If you’re a long-time customer with good credit and this is your first offense, the odds are in your favor. In fact, some card issuers will even waive a first late fee as a matter of policy. If you’ve been late multiple times in the recent past, however, your chances probably aren’t as good. Even so, it never hurts to ask.
How to ask for a higher credit limit
Start with a number in mind based on your current limit. The average increase reported in our survey was about $1,500, but your situation will vary. If your current limit is $500, a $1,500 bump might be asking too much. However, if your current limit is $5,000, that request might be just fine.
Think about why you’re asking for the increase — for some extra spending power or to help your credit score — and then decide what to ask for. Just remember that it’s always better to start a negotiation by asking for a little too much. That way, when you negotiate, you can give a little bit and still get what you want.
Can A Moving Loan Help Your Relocation? Find Out Here – Forbes Advisor
Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations.
Whether you’re relocating to another city or state, moving can be expensive. You might need money to pay for a moving van or movers, new furniture or your security deposit. If you don’t have money on hand to cover those expenses, a moving loan can help you fill in the gap.
Before you take out a relocation loan, learn what they are and how to compare your options to understand if it’s a good choice for your situation.
What Is a Moving Loan?
A moving loan—also referred to as a relocation loan—is an unsecured personal loan you can use to help cover your moving expenses. Unsecured loans don’t require you to use a personal asset to secure the loan. Because the loan is unsecured, lenders base your eligibility on factors like your credit score, income and debt-to-income (DTI) ratio. Like with other types of personal loans, you’ll have to repay your loan through fixed monthly installments.
When Should You Get a Moving Loan?
Although the answer varies based on your financial circumstances, it may make sense to get a moving loan if you can secure a good interest rate and can afford to repay the loan as promised. However, if you believe it might be hard for you to repay the loan, then it’s probably a good idea to avoid taking one out. Falling behind on payments can damage your credit score, making it harder for you to qualify for future loans.
How to Get a Moving Loan
- Search for lenders: To find lenders that offer relocation loans, search for the best personal loans online. A good place to start might be a lender comparison website. While there, carefully review the terms, minimum credit score requirements, fees and annual percentage range (APR) range of each lender. In addition, you can check with your local bank or credit union to see if it offers personal loans for moving.
- Prequalify with multiple lenders: Once you narrow down your list of the best lenders, prequalify with each one of them (if available). This allows you to see what terms and APR you might receive if approved. Make sure the lender does a soft credit check to protect your credit score from any pitfalls.
- Determine the amount you need to borrow: Estimate your moving or relocation expenses to see how large of a loan you need to take out. Different lenders have different minimum loan amounts. Also, some states have rules about the minimum amount you can borrow, which may affect the size of your loan.
- Apply for your moving loan: After you select the lender that matches your needs, complete the application process. Prepare to provide the lender with personal information, such as your income, date of birth and Social Security number (SSN). Some lenders will require you to provide W2’s, pay stubs or bank statements to confirm your income.
- Wait for the lender to make a loan decision: After you apply, wait for the lender to review your application. Some lenders might approve you within seconds, while others may take longer. If a lender denies your loan, ask them for an explanation. Applying with a co-borrower or co-signer, improving your credit score, reviewing your credit report for errors or requesting a smaller amount may improve your chances of approval.
- Sign the loan agreement and receive funds: Once approved, the lender will send you a loan agreement to sign. After you sign the agreement, the lender will most likely deposit your funds directly into your account. The time of funding varies for different lenders—some lenders can issue the funds the same day while others may take a week or longer.
- Repay your loan: Finally, repay your loan as promised. Making late payments or defaulting on the loan can damage your credit score. Setting up autopay is one way to ensure you’ll never miss a payment.
Pros of Moving Loans
- Quick access to funds: If your loan application is approved, some lenders may deposit your funds into your bank account the same day or within a week.
- Flexible loan terms: Some lenders allow you to take out personal loans for moving with loan terms as short as 12 months and as long as 84 months. A long-term loan may have a lower minimum monthly payment, which might better suit your budget. However, the downside is that you’ll pay more in interest over the life of the loan.
- Lower interest rates than credit cards: The average interest rates for personal loans are usually lower than those for credit cards. If you have a good credit score (at least 670) and a stable income, you may be able to secure a good interest rate—an interest rate that’s lower than the national average.
- No collateral required: Since loans for moving typically require no collateral—an asset that secures the loan—you won’t have to worry about a lender taking your asset (at least without a court’s permission).
Cons of Moving Loans
- Fees: Some lenders charge origination fees between 1% and 8%—these fees can be a huge drawback since the lender usually subtracts them from your loan amount. Other common personal loan fees include application fees, returned check fees, late payment fees and prepayment fees.
- Potentially high interest rates: If you have less-than-stellar credit or minimal credit history, your lender may charge you high interest rates. Some lenders have APRs above 30%.
- Missed payments can damage your credit score: If you miss a payment or default on the loan, it can damage your credit score. This will make it more difficult for you to qualify for future loans.
Moving Loan Alternatives
If you want to avoid the potential cons of a relocation loan, consider these alternative options to help cover your moving expenses or rent.
0% APR Credit Card
Borrowers with good to excellent credit scores (at least 670) can avoid paying interest and high fees with a 0% APR credit card. These cards come with interest-free promotion periods, which can last for up to 21 months. If you pay off your balance before the promotion period expires, you won’t have to worry about paying interest. However, providers will charge interest on unpaid balances once the introductory period ends.
Family loans are another way to avoid paying interest or to pay minimal interest when it comes to your relocation expenses. With this option, you can also avoid the formal loan application process. The loan agreement between you and the family member should spell out the terms and conditions of the loan. Repay the loan as promised to avoid causing damage to your relationship.
Payday Alternative Loan
If you can’t qualify for a relocation loan or have trouble finding moving loans for bad credit, consider using a payday alternative loan. Some federal credit unions offer these loans, which are designed to help you avoid the high-interest charges of payday loans. You can borrow up to $2,000; loan terms range from one to 12 months and the maximum interest rate is 28%. To use this option, you must be a member of a federal credit union or be eligible for membership.
Instead of using a personal loan for moving, it might be better to use your savings, if possible. If you know how much it will cost, then create an automatic savings plan to cover most or all of your relocation expenses.
If you’re moving for a new job, ask your new employer if it will cover some of your relocation expenses. Some employers offer this to employees as an incentive to accept the job offer. Even if the employer doesn’t offer this, you can ask for a relocation bonus or try negotiating a higher salary.
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