Question: I'm probably not the only person who ever made mistakes with credit, but it seems unfair that I'm stuck with my score forever. Even though I've paid everything on time now, things I did years ago still make it hard to get money. Is there some place that doesn't care about credit scores and is willing to give somebody with bad credit a second chance? The problem is that I'm still getting back on my feet, so I have a good job now, but no collateral yet.--Sam B., Texas
Answer: Yes, there are companies that offer second-chance loans to people with bad credit, and they don't require collateral. As you mention, lots of folks have made mistakes that they've learned from, especially with the economy the way it has been for the last few years, and some lenders are willing to recognize that and take a chance. Such loans can be more expensive, but that's better than not being approved at all.
Second-chance loans offer assistance to those who need money fast, but have no line of credit or credit cards to borrow from. They're generally set up to be quick and easy, because approval can be faster when the lender doesn't need to examine the borrower's credit history. A credit score of 640, 600 or even lower won't prevent you from getting such a loan, as long as you're not currently undergoing bankruptcy or have similar loans outstanding. You generally do need to have a regular paycheck and a checking account in good standing.
Rather than applying at local banks, look online for payday loans, second chance loans or bad credit loans. They're offered to residents of most states, but make sure that yours is included. The website should say which states they offer loans to, as well as listing the cost. Though the interest rate for such a loan may be higher, you should never have to pay a fee up-front to apply. There are also websites which will send your application to several lenders, who can then compete for your business, and you can choose the best one to accept.
If you have a financial emergency and need this kind of assistance, you can receive the funds quickly. Approval can come within minutes to a few hours, and once you accept the loan, the funds can be transferred electronically into your checking account usually by the next business day. The amount of the loan available will depend on several factors, including your income and state laws, but typical amounts for a first-time borrower range from $100 to $500, and can be as much as $1,000 to $2,500.
Second chance lenders know that even responsible people make mistakes or are caught up in economic downturns over which they have no control. If you need money quickly for a financial emergency, they're a good place to turn to for assistance, but before borrowing, work out your budget so you'll be sure to be able to repay. Though most lenders will allow you to extend the loan by just paying the interest and any fees, that can become expensive fast. So plan to save money by repaying the loan on time. Payday loans are due in full on your next payday, while installment loans can be paid back over several months. Both kinds are offered by second-chance lenders, but if you are able to pay an installment loan back early, you may be able to save money in interest.
How expensive are such loans? --HM, Nevada
For payday loans which you pay in full when your next paycheck arrives, the cost can range from $15 to $30 per $100 that you borrow, but obviously you can compare rates and look for the lowest one. If you figure the interest rate on an annual basis, that's high, in the range of 300%, but since you're only borrowing the money for a short time, the actual dollar cost isn't that large. Still, such loans are best used for an emergency where not having the money now will cost even more. --John Baker, Loanwhere
I was surprised, but they really don't care about your credit score the way a bank does. I got into some trouble with debt three years ago, have gradually been settling things, paying back what I can and working my way out, but my credit score is shot and probably will be for a while. To my surprise, I was approved instantly, which was a completely different experience that a bank loan where they want more information and then wind up turning you down in the end anyway. --Smitty, Reno.
I wish more places would be willing to give people second chances with credit, rather than making you wait years for old information to fall off your credit report. --Anon