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Financial hardship can hit anyone, regardless of how much you earn. When it does having access to credit can be a lifesaver. But for borrowers with bad credit, traditional loan options may be out of reach. Here are three hardship loans for bad credit to help you pass through this trying time as an African American.
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What Are Hardship Loans?
Hardship loans are designed to help you solve unexpected money problems, such as car repair, medical expenses, home improvement and funeral expenses. Unlike traditional loans, hardship loans can be easily accessible for people with bad credit records.
These types of loans are usually given by credit unions and small banks. However, it’s advisable to understand the loan terms, associated fees, and interest rates (APRs) before collecting it.
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What Hardship Loan Options Should You Consider?
Many loan options cater to people with bad credit scores during a time of financial crisis. Here’s a look at five options to consider as an African American.
Payday Alternative Loans (PALS)
These loans are offered by some federal credit unions. PALs usually cost less than traditional payday loans and also have longer repayment periods.
Most credit unions that give Payday Alternative Loans often don’t need good credit to qualify. They’re more concerned about your ability to repay back and your income. So, they may ask you to provide proof of income during the application. Check out these books on Amazon to learn about Payday Alternative Loans (PALS).
Personal Loans
Unlike credit cards, personal loans offer a one-time payment of money to you. Then, you repay that amount with the interest in normal, monthly installments over the lifetime of the loan called its term. There are secure and unsecured personal loans.
Secured personal loans are the types that require collateral. On the other hand, unsecured personal loans are the ones you can get without collateral.
These days many online lenders specialize in personal loans for bad credit. However, you need to note that most of them come with higher APRs and origination fees. You may consider lenders like Upstart, Avant, and Leadingpoint if you want to get a personal loan.
Home Equity Line of Credit (HELOC)
If you own a house with equity, HELOC can be an option to consider. It’s a secured loan type where you use your home’s value as collateral. You can often borrow up to 85% of your equity, though each lender has its maximum limit.
You normally have ten years to withdraw money from a home equity line of credit, while repaying only interest. Then, twenty additional years to repay your capital and interest at a variable rate. Here are books on Amazon to help you learn more about HELOC.
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Hardship Loans Alternatives
When in financial distress, exploring alternatives to loans can be helpful. Below are three hardship loan alternatives to consider as an African American.
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Loan Modification
If you’re struggling to clear up your existing debts, getting in touch with your lender and exploring loan modification options can ease your burden. A loan modification is an adjustment made to the terms of an existing credit by the lender. It can involve an extension of the repayment time, interest rate reduction, a different loan type, or a mix of the three.
Hardship Withdrawals
A hardship withdrawal is an urgent removal of money from a retirement plan. Hardship withdrawal is seen as a special distribution that’s free from any form of repercussions. This special distribution may be permitted with no penalties from plans like a 401k or a traditional IRA. But the withdrawal must meet certain criteria concerning the need for the money and the amount.
Debt Consolidation
This refers to taking out a new credit card or loan to pay off other existing credit cards or loans. By combining different debts into one bigger loan, you may be able to get favorable payoff terms like lower monthly payments, lower interest rates, or a combination of both.
What to Consider When Borrowing
Here are three important considerations before borrowing:
Borrow Only What You Need
When facing money problems, it’s easy to overestimate your needs. But it’s advisable to carefully review your needs and borrow only what’s necessary to fix the immediate issues.
Read the Fine Print
Before any loan agreement or accepting any offer, carefully read and understand the possible late fees, repayment terms, loan amounts, and origination fees. This will help you decide whether to take the loan or not. It’ll also give you a clear understanding of what the lender expects from you should take it.
Shop Around and Compare
Don’t make the mistake of settling for the first lender you find. Compare interest rates, customer support, loan terms, and fees among different lenders. Shopping around will help you find loan offers with low-interest rates, discounts and good customer service.
Money problems can be stressful and draining, but there are available options. Once you understand the different types of hardship loans for bad credit and thoroughly consider the terms before borrowing, you can find the cash relief you need during financial downtimes. Check out these books on Amazon if you want to expand your knowledge of loans, including home equity loans.
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