Personal Loans

Is There Such Thing as an Easy Loan?

Personal loans vs payday loans

There are a few types of loans that are easy to qualify for — they don’t require a credit check, for example. This may make them seem like an attractive option if you’re in a pinch. But easier doesn’t always equal better.

Before you take out an “easy” loan, learn how much it’ll cost you and what you risk if you default. You may find that these easy loans aren’t worth the trouble. We’ll also cover alternatives you may consider, even if you have less-than-perfect credit.

Beware these loans that are easy to qualify for

Payday loans and title loans may be easy to obtain, but they come with big caveats.

Payday loans

Typical terms Average rates Why you should avoid it
Loans usually total $500 or less with terms of 2–4 weeks APRs average nearly 400% thanks to high fees ($10–$30 per $100 borrowed) Payday loans may trap you in a debt cycle and cost you far more than the original loan amount

 

Payday loans are like stopgaps — they help you cover your bills from one paycheck or pension check to the next. You basically promise to repay the loan with your future income on an upcoming payday in exchange for cash you can use right now.

These loans are for small amounts (many states limit loans to around $500) and short terms (two to four weeks), and they’re available from online or in-person lenders. To get a payday loan, you write a postdated check for the total amount plus fees. Or, the lender will require authorization to access your bank account.

If you can’t cover the amount by the due date, you’ll get hit with additional fees and an extended term. This keeps you in an endless cycle of debt to the lender, costing you far more over time, and could damage your credit if the loan becomes delinquent. According to the Consumer Financial Protection Bureau, payday loan borrowers find themselves in defaulting 20% of the time.

Title loans

Typical terms Average rates Why you should avoid it
Loans range from $100 to $10,000 with terms of 30 days or less APRs are around 300% thanks to fees averaging 25% of what you borrow Terms are short for large loan amounts, and you risk losing your vehicle if you default

 

As the name suggests, a title loan requires you to hand over the title to your vehicle as collateral for the cash you receive.

Like payday loans, title loans have short terms and high fees — but because your car secures the loan, you can borrow more. This can be risky for a few reasons: you may owe a lot of money that you have to pay back in a month or less, and if you cannot repay your loan, the lender may eventually seize your vehicle.

According to the CFPB, one in five borrowers who have single-payment title loans have their cars repossessed.

Consider these 3 alternatives to easy loans

In general, you should avoid payday loans and title loans. Their high fees and short repayment terms mean you could get trapped in a debt cycle if you can’t quickly repay your balance. Consider these alternatives instead.

Bad-credit personal loans

Typical terms Average rates Qualification requirements
24–60 months Up to 135.94%, depending on your credit score Many lenders require a minimum credit score of 600

 

A personal loan can be used to cover emergency expenses, make repairs on your home or even pay for a vacation — though the most common use is debt consolidation. It is possible to get a personal loan with bad credit and better terms than a payday or title loan, though it could still cost you a lot in interest. For that reason, it’s likely best to use this option only if absolutely necessary.

Pros

  • No collateral is required (in most cases)
  • Longer terms give you more time to repay
  • Some lenders accept lower scores

Cons

  • Interest rates and fees are higher for those with bad credit
  • Hard inquiries can lower your credit score

Home equity loans

Typical terms Average rates Qualification requirements
Fixed terms ranging from 10-30 years Varies (but often between 4.25% and 6%) Loan-to-value ratio of 90% or less, low debt-to-income ratio, credit history

 

Home equity loans allow you to borrow against the portion of your home that you own. Because you put up your home as collateral, lenders may be more willing to overlook poor credit or offer better interest rates. The downside: You risk losing your home if you don’t pay off your loan.

Pros

  • It may be easier to qualify for than an unsecured loan
  • You may get for a lower interest rate with your home as collateral
  • Fixed rates and monthly payments make planning easier

Cons

  • Your lender could seize your home if you default
  • Your home could decrease in value

Home equity lines of credit

Typical terms Average rates Qualification requirements
Credit line stays open for 5-10 years with a 10-20 year repayment period Varies Loan-to-value ratio less than 80%-90%, low debt-to-income ratio, credit history

 

Like a home equity loan, a home equity line of credit (HELOC) relies on the equity you have built up in your home. The difference is that with a HELOC, you have a revolving credit line and you only pay back what you spend.

Pros

  • It may be easier to qualify for than an unsecured loan
  • You only pay interest on what you actually borrow

Cons

  • Potential fees and minimum withdrawal requirements
  • Adjustable rates mean less predictable payments

What to consider when shopping for a loan

When looking for the best loan option for you, ask yourself the following questions:

  • Is the loan secured or unsecured? With a secured loan, you provide the lender with some form of collateral, like your home or your car, that guarantees you’ll pay back what you owe. It may net you better rates, but it could put your property at risk.
  • Do you need it? Are there other ways to cover your expenses? For example, you may be able to tighten up your budget, hold off on a big purchase or even negotiate your debt with your creditors.
  • Can you afford it? This one may require some calculations. Keep in mind that loans come with interest, and some have fees — especially if you have bad credit. Consider whether you’ll be able to repay the loan amount (and then some) within your term.

In general, loans that are easy to get like payday and title loans aren’t worth the high fees and risk. Seek out other funding options and shop different loan types and lenders. Only commit to a loan when you’re certain you need the loan and can repay it quickly or at least on time while avoiding hefty fees.

 

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