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Personal Loans vs. Payday Loans: What’s the Difference?

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If you need cash in a pinch to pay a medical bill, fund an urgent home repair or keep food on the table while between jobs, you might consider taking out a loan. This can be a good way to get the money you need — and fast — but the type of loan you choose is important. The terms attached to the loan can have a significant impact on your finances, so before signing any papers, it’s important to know exactly what you’re getting into.

Here’s a look at the difference between personal loans and payday loans to help you make an informed decision.

Personal loan vs. payday loan

 Personal LoanPayday Loan

What is it?

An unsecured loan that typically comes with a fixed
interest rate and a term of one to five years

A loan obtained by paying a borrowing fee that usually needs to be repaid in two weeks

Typical interest rates*

Interest rates range from about 6% to 35%

Many states have laws limiting fees to $10 to $30 per $100 borrowed, but APRs can reach nearly 400%, according to the Consumer Financial Protection Bureau (CFPB)

Common eligibility requirements

Credit check, proof of income, bank account, identification

Proof of income, bank account, identification

Typical amount borrowed

$1,000 to $50,000

$500

*Loan and interest rate amounts vary by individual borrower and lender.

What are personal loans?

If you need money quickly, a personal loan could be the answer. Since this form of financing is unsecured, underwriting typically only takes a few days. And if you default, the lender cannot repossess your property. Most personal loans come with a fixed interest rate and a set payment schedule so that you always know exactly how much you owe each month.

Who should take out a personal loan?

Personal loans can be used for a variety of purposes, including debt consolidation,paying for a wedding,medical bills, car repairs or almost any other reason you need cash. But it’s important to use common sense since taking out a personal loan that doesn’t offer a long-term benefit — say, using a personal loan to buy a new wardrobe or pay for a vacation or lavish wedding — can set you back financially for years. Think of it this way: Making payments on a personal loan leaves less room in your budget to put money aside for the future or save for retirement.

If you’re trying to raise your credit score, a personal loan can also be a useful tool. Credit scoring systems consider installment debt preferable to revolving debt, such as credit cards. Your monthly payment activity will be reported to the three credit bureaus — Equifax, Experian and TransUnion — so making consistent, on-time payments will eventually boost your score.

How do personal loan rates and terms compare to other forms of borrowing?

Personal loans pose a greater risk to the lender than a loan that requires borrowers to provide a security deposit or collateral. So personal loans tend to come with higher interest rates than secured debt.

But your credit score is a factor in determining your interest rate, so if it’s high, you might be offered a low rate. You might also be charged an origination fee or other borrowing fees, so it’s always wise to shop around for the best personal loan offer.

Do note that personal loans typically come with lower interest rates than credit cards. Since most rates are fixed, they’re usually the better option when you need funding that you can’t pay off immediately.

Where can you get a personal loan?

Banks and credit unions offer personal loans, but don’t stop there. Cover all the bases by checking with online lenders, as many offer competitive rates and terms that can’t be beaten by traditional financial institutions. Comparison shopping is essential. One lender might offer better rates, but lower costs and fees at a different financial institution could make it a better choice.

You’ll likely be paying off your personal loan for one to five years, so take the time to find the right fit. If you go with the first offer you receive, you won’t know if you’re making the best choice for your unique situation.

The LendingTree online marketplace makes it easy to find the best personal loan for your needs. Complete a quick online form to connect with one of the largest lender networks in the country. This one-stop tool could allow you to receive offers from up to five lenders without impacting your credit score.



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Note: LendingTree is a parent company of MagnifyMoney.

Personal loan pros

  • Unsecured personal loans require no collateral
  • Boost your credit score
  • Get the funds you need quickly
  • Good credit could score you a lower interest rate
  • Most are fixed-rate loans, making it easier to budget

Personal loan cons

  • Poor credit could cause your application to be denied
  • Approved borrowers with subprime credit might receive higher interest rates
  • Many come with origination or other borrowing fees
  • Interest rates are typically higher than secured loans
  • Payments could take away from other savings opportunities

What are payday loans?

As it sounds, a payday loan is typically a short-term, high-cost loan due on your next payday, according to the CFPB. Most payday loans are granted for sums of $500 or less, but they can vary in size. Many states have regulated the dollar amount of payday loans.

Most payday loans are based on the size of your paycheck. When you choose this type of financing, you either write the lender a postdated check for the full balance of the loan and the borrowing fee or authorize them to access the funds electronically from your bank account. In most cases, the loan will need to be repaid in two to four weeks, but if you still don’t have the money, most lenders will allow you to roll the loan over — which, if you’re not careful, can create a cycle of debt.

Who should take out a payday loan?

If you need money to tide you over until your next paycheck but your credit isn’t the best, you’ll likely be approved for a payday loan. Generally a quick and easy process, most payday lenders don’t run a credit check or otherwise dig into your financial history before granting the loan. The only things needed to get a payday loan are a bank account, steady income and a form of identification, making the barriers to approval notably low.

But just because payday loans are easy to get doesn’t mean they’re the right solution. Payday loans are considered a last resort. If you have bills to pay and nowhere else to get the money, payday lenders offer immediate access to cash, which makes them an attractive offer for borrowers with poor credit. But the high cost and short repayment period of this debt is a slippery slope. If you’re unable to make a payment, your debt could quickly balloon out of control.

How do payday loan rates and terms compare to other forms of borrowing?

The biggest drawback of payday loans is the costs associated with them. Fast and convenient financing comes at a high price that can add up very quickly. Both the fees and APR attached to a payday loan are notably higher than those charged for personal loans by traditional lenders.

Many states have laws in place limiting payday loan fees to a maximum of $10 to $30 for every $100 borrowed, according to the CFPB. A standard two-week payday loan with a $15 per $100 fee comes with an APR equivalent of nearly 400%. In comparison, the CFPB notes that APRs on credit cards typically range from about 12% to 30%.

Fees can add up fast during one payment cycle, but according to the CFPB, many borrowers ultimately roll over or refinance their loans. This adds a new round of charges to their total, making it even more difficult to catch up on payments.

In total, more than 4 in 5 payday loans are re-borrowed within a month, according to the CFPB. Most of the time, this occurs when payment for the loan is due or not too long afterward. Even worse, nearly 1 in 4 original payday loans are re-borrowed at least nine times, causing the borrower to pay more in fees than the actual loan balance.

The federal Military Lending Act offers special protections from payday loans to active-duty service members and their dependents, according to the CFPB. This includes a 36% cap on the Military Annual Percentage Rate and other restrictions on the fees that lenders can tack onto payday loans and other consumer loans.

Where can you get a payday loan?

Most payday loans are granted by check cashers, finance companies and other nonbank institutions. If permitted by your state’s laws, you might also be able to get a payday loan online.

It’s important to note that payday loans are not available in every state. Some states have outlawed this form of borrowing, and regulations in other states have caused payday lenders to decide not to do business there at all, according to the CFPB.

Payday loan pros

  • No credit check makes it easy to qualify
  • Upon approval, money is immediately distributed
  • Some lenders offer cash, prepaid debit cards or direct deposit
  • You might be able to roll the loan over if you can’t repay it immediately
  • Easy access to cash can ease the stress of financial woes

Payday loan cons

  • Loans are typically limited to $500 or less
  • Fees generally range from $10 to $30 for every $100 borrowed
  • APRs can reach nearly 400%
  • They’re not available in every state
  • Repeatedly rolling over payday loans can exceed the original loan balance

Which should you get?

If you need money right now, you’re probably ready to accept a loan from the first available source, but don’t act in haste. Take the time to weigh your options to make the best possible decision for you.

Get started by asking yourself these questions:

  • How much money do I need?
  • How quickly can I repay the loan?
  • Is my credit score attractive to lenders?

If you need a large amount of money — $1,000 to $50,000 — apply for a personal loan. Interest rates generally range from 5.99% to 35% and repayment terms are usually one to five years. This gives you the flexibility to negotiate a monthly payment that comfortably fits your budget. Even if your credit isn’t perfect, some lenders might be willing to work with you.

But if you have poor credit or otherwise can’t qualify for other loans, payday loans may be your only option. Before you borrow, be sure you can repay the loan at its due date, since APRs can reach almost 400%. The last thing you want is to have to roll your payday loan over, which could quickly cause the fees to exceed the original balance.

The bottom line

Being in desperate need of cash isn’t a good feeling. When you needed money yesterday, it’s easy to panic and go with the first available form of financing, but don’t make this mistake. Choosing the wrong type of loan for your situation can be detrimental to your finances for years to come.

Take the time to weigh the advantages and disadvantages of personal loans and payday loans, as applied to your unique circumstances. When you decide which option is best, comparison shop to make sure you get the best possible deal. Being savvy with your finances is a decision you’ll never regret.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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The Ultimate Guide to Personal Loans

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Personal loans are a versatile form of credit. You can use them to consolidate other high-interest debts, pay for home improvements and more. Because they usually come with fixed interest rates and repayment schedules, you know exactly how much you need to pay each month and when your debt will be paid in full.

Still, taking on any type of debt is a serious responsibility. This personal loan guide will help you learn more about how personal loans work, which pitfalls to avoid and some alternatives to consider.

Part I: Personal Loans 101

How do personal loans work?

When you apply for a personal loan, you borrow a specific amount of money — most often at a fixed interest rate — for a set amount of time. Then you pay off your balance monthly until it’s paid in full.

The terms of your personal loan will depend on your unique financial situation and your lender. The loans are typically offered in amounts ranging from $1,000 to $50,000, and potentially even higher, depending on the lender. As for the repayment period, the loans’ terms often range from one to five years, but can potentially go up to 15 years for purposes such as home improvement.

Personal loans are unsecured debt, meaning they’re not secured by an underlying investment like a home or a car. For that reason, they usually come with higher interest rates than you might get with a mortgage or auto loan.

To get a real sense of how much a personal loan will cost you, keep an eye on the annual percentage rate, or APR. It includes interest and other costs, which could include an origination fee. An origination fee is a loan processing fee that can typically be 1% to 8% of the loan amount; however, some lenders, such as Lightstream and Discover, don’t charge any origination fees at all.

Pros and cons of personal loans

Pros

  • Interest rates can be lower than credit cards. While interest rates on personal loan offers have risen lately, they can still be a good option for consolidating high-interest credit card debt, especially if your credit is top-notch. The average APR on a personal loan offer from a lender is now 11.81% for borrowers with excellent credit, and 15.61% for those with very good credit, according to recent data from parent site LendingTree; in contrast, companion site CompareCards lists the average APR on all credit accounts is 15.09%.
  • Quick access to funds. Depending on your lender, you may receive funding for a personal loan in just a day or two.
  • Predictable payments and interest. Because personal loans generally come with fixed rates and payment terms, you may not have to worry about your interest rate or monthly payment going up. That makes it easier to budget.

Cons

  • Could lead to overspending. Personal loans can be used for almost any purpose, which could lead you to borrow more than you can afford to repay each month.
  • Higher interest rates than some loan products. For example, if you have equity in your home and good credit, you may be able to get a better rate with a home equity loan or line of credit.
  • Damage to your credit if you don’t pay. Some lenders offer options for borrowers facing financial difficulties, and may work with you if you lose your job or face other financial troubles. However, your credit might be damaged if you ultimately can’t make your payments.

What you may need to qualify for a personal loan

  • Good or excellent credit. If your credit score is 640 or lower, it will likely be more difficult to get approval for a personal loan (although some personal loan companies might still work with you). By contrast, having good credit (a FICO score of at least 670) will give you more borrowing options, and a score of 740 will let you qualify for loans with the best interest rates and terms.
  • Low debt-to-income ratio. Lenders might be hesitant to lend money if your debt-to-income ratio is too high. This ratio is determined by taking your total monthly recurring debt and dividing it by your gross monthly income. For personal loans, lenders usually like to see a DTI ratio of 36% or less. Still, even with a high DTI, you may qualify for a personal loan if your credit score meets a lender’s criteria, and you have both a solid income and credit repayment history.
  • Cosigner or collateral. If you have a bad credit score, you may need a cosigner with good credit or collateral to help you qualify for a personal loan.

How to pick the best personal loan

Here are tips that can help you identify a personal loan that’s right for you:

  • Shop around with different lenders. Gather information on personal loans to compare interest rates and loan terms from various lenders.
  • Read the fine print. Make sure you understand your contract, your monthly payment and all terms and potential fees.
  • Read reviews. Reading reviews of top personal loan companies can help you gauge the quality of each lender and what your experience might be like.

Part II: Common Uses for a Personal Loan

You might be surprised to know just how many uses personal loans can have. According to an April 2020 report from LendingTree, some of the top reasons applicants seek personal loans include:

  • Credit card refinance: 32.0%
  • Debt consolidation: 31.0%
  • Home improvement: 8.5%
  • Major purchases: 5.0%
  • Car financing: 4.3%
  • Business: 1.8%

These numbers don’t mean personal loans are the right choice in every borrowing situation. Here’s some more information about potential uses, along with some pros and cons:

Common uses for personal loans

Debt consolidation

If you’re struggling to pay back several types of debt, a personal loan may let you streamline payments and pay less interest overall. One caveat: if you can qualify for one, a 0% balance transfer credit card could be a less expensive option for combining debt.

Credit card refinance

Personal loans often have lower interest rates than credit cards — just make sure you’ll actually save money after taking into account a loan’s interest rate, origination fee and repayment term.

Home improvement

If you don’t have enough equity in your home to qualify for a home equity loan or line of credit, a personal loan can help finance home improvements. It may, however, come with a higher interest rate.

Major purchase

A personal loan might cost less in interest than a credit card for that big buy of yours. Still, before taking on new debt, consider whether you really need that purchase now — or whether it would be cheaper to save up and pay cash.

Car financing

A personal loan could be an option for buying a car, but it might be easier to qualify for an auto loan, as well as pay less interest and fewer fees (a car loan uses the vehicle as collateral).

Small business financing

If you’re starting a business and aren’t yet earning money, it may be tough to qualify for a business loan. A personal loan can help get your business off the ground. One potential red flag: If your business goes under, you’ll still have to pay back the loan or risk damaging your credit.

Medical expenses

Taking out a personal loan to pay for medical expenses can keep medical bills from going to a collection agency. However, first see if your medical provider provides payment help, as many do. They may be willing to work with you to pay off your balance — and not charge interest.

Part III: Personal Loan Traps and Scams to Avoid

Here are some personal loan traps you should consider:

Advance loan fees

Occasionally, a fraudulent loan company will offer outrageous loans and loan terms with a catch: You must pay upfront fees or “insurance” to qualify.

Look out for lenders who ask you to wire funds via Western Union or MoneyGram — reputable lenders won’t ask you to pay money upfront.

‘No credit check’ loans

According to the Federal Trade Commission (FTC), a lender who isn’t interested in checking your credit is a red flag.

Steer clear of ads and websites that promise “Bad credit? No problem” or “We don’t care about your past,” the FTC cautions. These slogans usually signal a scam.

Precomputed interest

Some personal loans might come with precomputed interest, which means they use the original payment schedule to calculate interest, even if you make payments early. This forces you to pay more interest over time, even if you make larger payments or try to pay off your loan early.

Prepayment penalties

Some personal loans tack on a prepayment penalty if you pay your loan off early. And while prepayment penalties aren’t that common, they are unnecessary. Be sure to read through your loan terms to check for a prepayment penalty before you sign the agreement. If you find one, consider opting for another lender.

Part IV: Alternatives to a Personal Loan

Personal loans vs. credit cards

Credit cards can be a great deal if you pay them off monthly, as you have the potential to earn rewards.

Personal loans vs. HELOCs

A home equity line of credit (HELOC) is a revolving line of credit secured by your home. HELOCs often have lower interest rates than personal loans, and you may be able to deduct the interest if you itemize your taxes. By contrast, interest paid on your personal loan is not tax-deductible.

Personal loans vs. cash-out refinance

A cash-out refinance lets you take out a new mortgage that’s more than what you now owe, and pocket a portion of the loan as cash. It usually comes with a lower interest rate than a personal loan, but with longer terms, so you could end up paying more overall. If you’re opting for a cash-out refinance, check this calculator to determine how much you might be able to borrow, and what your new monthly mortgage payment will be.

Unsecured personal loans vs. secured personal loans

A secured personal loan requires borrowers to use an asset, like a vehicle or certificate of deposit (CD), as collateral. A lender can repossess the asset if the borrower fails to make payments, so interest rates on secured personal loans tend to be lower than those on unsecured loans.

FAQ: Personal loans

The amount you can borrow varies by lender, but generally ranges from $1,000 to $50,000.

Yes, if you use it to consolidate high-interest debts from credit cards or other loans. To get out of debt faster, make sure your new personal loan comes with a lower interest rate than you’re already paying, along with few or no fees.

Your interest rate depends on the type of loan you apply for, how much you want to borrow and the quality of your credit. While each lender is different — for example, some will work with you if your credit isn’t ideal — a FICO score of at least 670 will give you more options.

If you were denied a personal loan due to poor credit, the best thing you can do is work on improving your credit rating. Pay bills on time, pay off debt to reduce the amount of available credit you’re using and avoid opening or closing too many accounts.

Thanks to the internet, you can apply for a personal loan online and from the comfort of your home. You can also compare fees and interest rates from top personal loan companies by visiting this page.

If you apply for a personal loan, a hard inquiry will be placed on your credit report, but any negative hit your score takes will be short-lived. Your credit score will more likely take a larger hit if you borrow too much and can’t repay. On the other hand, repaying your personal loan on time, and ultimately in full, might actually help your score in the long run.

If you’re cash-strapped, this may sound tempting, but most mortgage lenders discourage it. Before approving you for a mortgage, lenders will look at your debt-to-income ratio, so taking on a personal loan to afford a down payment might actually disqualify you in the end.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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What Is Predatory Lending? What You Need to Know

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Predatory lending occurs when a borrower is pushed (or tricked) into getting a loan with terms that are unclear or deliberately deceptive.

If you’ve ever felt pressured to take a loan where the terms weren’t what you expected, most likely you’ve had a brush with predatory lending. Maybe you also felt harassed — or even threatened — into signing a loan without fully understanding the terms, or before you were ready.

Any lender can engage in predatory lending, whether it’s for a mortgage, car purchase, home improvement loan or a similar borrowing situation. Here’s a guide to what you need to know about predatory lending: common warning signs, ways to fight back and some of the lending alternatives you might want to consider instead.

How does predatory lending work?

With a predatory loan, the loan is most often not what the lender initially described. For example, maybe you were promised a fixed-rate mortgage, as well as a long repayment term, for that new home. Instead, you’re handed an adjustable-rate mortgage — with a very short repayment term that makes it almost impossible to pay back without an expensive refinance that your lender offers to do too. If that happens, you’ve been subjected to a classic bait-and-switch move in predatory lending.

Some borrowers are especially vulnerable to this type of deceit. Elderly borrowers, for example, may have a lot of equity in their homes, but limited access to income or credit. Predatory lenders also prey on borrowers who need emergency cash to pay for unexpected medical bills, or home or auto repairs.

Taking out a payday loan often causes problems too. You might get your money quickly and with little fuss, perhaps at a storefront or online, but those loans almost always carry exorbitantly high interest rates.

Coronavirus: Beware predatory lending practices

In times of crisis, certain lenders may decide to take advantage of consumers who might be experiencing dire financial circumstances. The economic uncertainty caused by the new coronavirus pandemic is no exception, and U.S. lawmakers have already expressed concern about how financially vulnerable Americans may be as they face salary cuts, job losses and the prospect of an imminent recession.

If the pandemic has left you facing financial hardship, avoid using predatory loans to stay afloat. Instead, you may be able to access needed funds — as well as deferments on loan payments, like those that may be available for mortgages — from your bank or credit union. You might also be eligible for an Economic Impact Payment and other resources provided by the federal 2020 CARES Act. To learn more about this major piece of legislation, check this link from our parent company LendingTree.

Predatory lending practices: 8 warning signs

High interest rates and fees

High interest rates and fees are key signs of a predatory loan. If you’re applying for a loan and the interest rate or the loan and documentation fees seem high, ask your broker if they’ll be getting a yield-spread premium from the lender. This is a commission your lender may be paying the broker in exchange for offering an inflated interest rate.

Lack of information

If loan terms aren’t clear to you — or a lender can’t answer your borrowing questions directly — there’s a good chance you’re dealing with a predatory lender. Avoid signing on the dotted line if a lender can’t clearly tell you whether your interest rate (or any other terms) will change over the course of the loan, what fees will be included or if there are prepayment penalties.

False information

Predatory lenders often misrepresent loan terms or may even lie about them. Beware of loan terms that seem too good to be true; they most likely are. Language like “easy payment terms, “no payments for 90 days” or “easy credit” should raise red flags.

Pledges not to perform credit check

Lenders routinely perform credit checks before approving and issuing loans to ensure the borrower can afford to repay. If a lender tells you “no credit check required,” chances are that lender is going to require some form of collateral, possibly in the form of the title to your car or access to a bank account. It’s never a good idea to put other assets at risk for a loan you might not even be able to repay.

Unusual prepayment penalties

When you take out a loan, you generally have the option of either repaying the loan early or refinancing, usually without paying any penalties, or at least with very limited fees. A predatory loan, however, may include steep fees for prepayment and refinancing, and these fees can add up to thousands of dollars.

Doesn’t report to credit bureaus

One of the advantages of taking out any kind of loan is that it can help you build a solid credit history, assuming you make payments on time and your lender reports the loan to credit bureaus. Lenders are not legally required to report loans to bureaus — however, if your loan isn’t reported, it might be a sign your lender doesn’t necessarily have your best financial interests in mind.

Lender access to bank account required

Payday lenders, in particular, are likely to ask for bank account information before handing over a high-interest, short-term loan. If you allow access — and are economically vulnerable — you may get hit with overdraft charges if sufficient funds aren’t available to cover the loan.

Hidden balloon payments

Often, a predatory lender may convince a borrower their loan comes with low monthly payments. The borrower later learns those low rates applied only for a short period of time, and that they will “balloon” at the end of the life of the loan unless the borrower doesn’t refinance. If you’re constantly feeling pressured to refinance your loan, persistent “flipping” may be costing you plenty in unnecessary fees and points.

Anti-predatory lending: What are the protections?

Fortunately, there are legal protections in place to reduce the practice of predatory lending and help consumers fight back. Here are some of the laws that provide support and resources:

  • Equal Credit Opportunity Act (ECOA): This law protects consumers from lending discrimination due to age, gender, race or ethnicity. This law aims to rectify the denial of lending opportunities to minority borrowers, who may have encountered predatory lendering because of discrimination by more traditional lending institutions. If you think you’ve been discriminated against, report it to your state attorney general’s office.
  • Truth in Lending Act (TILA): This legislation requires lenders to clearly, accurately and fairly disclose credit and loan terms to borrowers. It also gives borrowers three days to back out of a potential loan without having to pay a financial penalty.
  • Home Ownership and Equity Protection Act (HOEPA): Lawmakers passed this law in 1994 with the specific goal of protecting borrowers from abusive home lending practices and high-cost mortgages, and further amended it in the years following its enactment. For borrowers getting high-cost mortgages, the act directs lenders to provide them with all necessary disclosures and loan terms, and encourages or requires homeownership counseling.

Most states also have laws designed to protect borrowers from predatory lending. These laws range from those that prevent payday loan companies from operating within the states, to caps on the interest rates the companies can charge. Illinois, for example, limits the interest rate that can be charged on payday loans to 15.5%.

To find more about what’s allowed in your state, visit this site from the National Conference of State Legislatures.

Alternatives to predatory lending

Some credit unions offer payday alternative loans, or PALs, to account holders with poor credit who need a short-term loan. A PAL usually offers more financial stability and less risk than a payday loan; for example, you can pay it back over a period of up to six months. PALs are regulated by the National Credit Union Administration, a federal agency. In order to apply for a PAL, you’ll need to belong to a federal credit union.

If you’re in a tight financial spot, you may be able to receive a payroll advance where you work. Many employers let employees borrow against upcoming paychecks to cover a critical, unexpected expense. In general, you can expect a payroll advance to be far less expensive what a payday loan might cost.

If you have either poor credit or no credit, you can still get a personal loan while steering clear of predatory lending practices. Credit unions, in particular, can be solid sources of personal loans for members who have poor credit, and even traditional lenders may be willing to provide a personal loan to someone with bad credit who also has a cosigner.

A credit card is basically a revolving line of credit you can use to borrow up to the credit limit set by the lender, depending on how much credit you have available and as long as you meet the required monthly minimum payments. Pick a credit card with the lowest interest rate you can get, or take advantage of the introductory 0% interest rates many lenders offer. Then, pay off your credit debt as quickly as possible.

It may feel awkward asking family or friends for a loan, but it may give you more flexible repayment terms. The biggest drawback: If you fail to pay back the loan or make timely payments, your relationship may suffer.

Low-income borrowers who want to avoid predatory lenders can contact the National Foundation for Credit Counseling (NFCC) for help with debt management, and to find a reputable nonprofit financial counselor within the foundation’s national network.

If you’re having trouble meeting financial obligations, tap your lender for potential options. For example, a credit card company might be willing to offer a lower monthly minimum payment or a lower interest rate.

FAQ: Predatory lending

Predatory lending occurs when lenders push (or trick) a borrower into getting a loan with terms that are unclear or deliberately deceptive. With any loan you should always feel comfortable with the terms, and the working relationship you have with your lender. If you don’t, it might be time to step back.

Balloon-type mortgages can be predatory if a lender misrepresents or doesn’t ensure a borrower understands payments will escalate over time. The Federal Trade Commission warns consumers to avoid car title loans, as they’re typically short-term loans that come with a triple-digit annual percentage rate (APR). Because the loans require borrowers to hand over the title to their automobile as collateral, you risk losing a much-needed possession.

Predatory student loans often feature excessively high interest rates. The current interest rate on a federal student loan ranges between 4.32% and 7.08%, so be careful if you spot a much higher rate. Student loans that have prepayment penalties or require a car or home as collateral might also be considered predatory.

Be on the lookout for automobile dealers who load up a loan with extra “junk” fees, like for service contracts, rustproofing and theft deterrents. Also look for loans that dealers finance in-house; they may come with an APR that’s far higher than what a bank or credit union might offer.

To get out of a predatory loan, try refinancing the loan with a reputable lender. Credit counselors, often working for free, may be able to help too; you could start by contacting the nonprofit Legal Services Corporation, or HUD, if you need housing help. In addition, the aforementioned NFCC says it will work with clients regardless of their financial situation; according to the organization’s website, “we don’t turn anyone away.”

If you think you’ve been a victim of predatory lending, report it to the Federal Trade Commission or to your state attorney general’s office. If the predatory lending involves a local home improvement contractor, contact the Better Business Bureau for guidance.

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