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When you are strapped for cash and have bad credit, a payday loan can seem like the best option for quick cash. But the convenience of a payday loan often comes with a hefty price.
The amount you can borrow will be limited, usually $500 or less, and the fees are substantial, usually $15 or more per $100 borrowed. And you may only have two weeks before you’ll need to pay the loan back or start accruing interest charges and late fees.
If you can’t afford to pay back the payday loan, you might find yourself taking out a second one to cover the costs. This starts a vicious cycle that is difficult to get out of.
But what alternative do you have? With bad credit, a payday loan is your only option, right?
There are other services out there, ones without horrible fees and interest rates, that can offer you cash fast with no credit check.
Also Read: Payday Loan Alternatives
These services are ones that simply require proof of income, which is something the payday loan people will require as well.
Payday Loan Alternatives
Taking out payday loans is not the only way to get cash quickly when you have a low credit score. There are many cheaper and better for your credit, alternatives.
Below are four alternatives, some are credit lines while others are credit cards, but all of them are easy to get approved for even if you have bad credit.
Tomo is a next-generation credit card.
When you sign up with Tomo, you’ll need to link your bank account and the company will evaluate your income and spending habits, no credit check required.
Once approved, you could receive a credit line ranging from $100 to $10,000 based on your bank account balance(s).
Tomo’s credit card can be used anywhere that Mastercard is accepted. And each time you swipe the card, you’ll earn 1% cash back in points, which can be redeemed 28 days after the prior month’s statement has been paid.
Paying back your charges on Tomo is automatic. Tomo tallies up all of the purchases you have made every seven days and deducts that total from your checking account.
The downside is that you can’t carry a balance past seven days. The upside is that no balance equals no fees. Tomo does not charge any kind of fees or interest. Your account is completely free.
Tomo will issue you a statement once a month that shows the total purchases you made on your credit card that month as well as the payments made. They also report this information to all three credit bureaus so that you can work on building credit.
These features make Tomo a great option for those who have zero credit and who need to cover everyday expenses until pay day.
The Indigo card is a credit card offered directly through Mastercard. This credit is best suited for those that have poor credit.
To help you avoid an unnecessary hard pull, the Indigo card offers a pre-qualification process. If you meet the pre-qualification criteria, then there is a good chance that you will be approved for the card. Pre-approval is not a guarantee of approval.
If you don’t meet the pre-approval criteria for the Indigo card, Mastercard will look to see if you meet the requirements of any of their other products and could offer you pre-approval on those cards instead.
After receiving pre-approval you can move forward with the application, which will include a credit check and hard inquiry. The credit limit on your new Indigo card will be set at $300 or lower. Unfortunately, there is no opportunity to increase this credit limit at a later date.
The APR on this card is set at 24.9%.
Also Read: I Need a Payday Loan Immediately
This card does come with the possibility of an annual fee. Depending on your creditworthiness, you’ll receive an annual fee of $0, $59, or $99. If you receive the $99 annual fee, you get a discount the first year, making the fee only $75.
The Indigo card is best for those with bad credit who can’t qualify for one of the other products on this list.
Petal offers an unsecured credit card that you can be approved for even with little to no credit history.
When you apply for a Petal credit card, Petal will first run you through a pre-approval process. The questions and information in this process are meant to help you determine whether you should or should not apply.
Petal will do a soft pull of your credit. If you have a thin credit profile (or no credit history), Petal will ask you for your bank account information. By evaluating your income and spending habits, they create a “Cash Score” for you (their version of a credit score).
If you meet the pre-approval criteria, you can then complete the application, though it is important to note that continuing will result in a full credit check (hard credit inquiry).
If you don’t meet pre-approval, then you won’t be able to apply, so there is no risk to your credit in going through pre-approval.
There are two cards that you can be approved for, Petal 1 and Petal 2. While they have similar features, there are some differences in rewards rates and APRs. Petal 2 rewards you for making on-time payments by increasing your cash back rate at 6 months and 12 months.
Feature Differences Between Petal 1 and Petal 2 Credit Cards
|Features||Petal 1||Petal 2|
|Credit Limit||$300 – $5000||$300 – $10,000|
|APR||19.99% – 29.49%||12.99% – 26.99%|
|Cash Back||None||1% – 1.5%|
|Rewards||2% – 10% cashback at select merchants||2% – 10% cashback at select merchants|
Petal is a good option to consider if you are looking for a credit-building product that offers rewards.
Building Your Credit is the Best Long-Term Solution
When you have a bad credit score, obtaining credit quickly is extremely difficult. Instead of having to always resort to payday loans, title loans, and other types of emergency loans, choosing options that help you build credit will be best in the long term.
Improving your credit score helps you qualify for premium no-fee credit products that can act as a buffer in times of need.
A better credit score can even help you in other areas of your life, like searching for a job, renting an apartment, and more.
In an emergency cash crunch, payday loans may be the easy choice, but they are one of the worst. Phrases like “instant approval” or “guaranteed approval” may be attractive when you have a low credit score, but don’t fall for it. There is no such thing as a “guaranteed” approval.
Payday loans are predatory and even illegal in some states.
Next time you need cash quickly, take a look at all of your options. There are safer, cheaper alternatives out there that can help you build credit in the long run.
Amanda Garland is a personal finance blogger living in Dallas, TX. 10 years ago she was living paycheck to paycheck and knew nothing about how credit works. She learned some hard lessons in her fight for financial stability. Now she has a friendly competition going with her husband to see who can reach a credit score of 850 first. She is also a poet, having obtained a Bachelor of Fine Arts degree in Creative Writing.