Getting affordable loans with bad credit loan in Texas can be very challenging. Bad credit refers to having a poor credit score, typically under 620 according to FICO and under 580 by VantageScore standards. Those with bad credit often face higher interest rates, more fees, and stricter eligibility requirements when applying for loans.
There are a few key reasons why someone may have bad credit:
- Missing loan or credit card payments in the past
- Defaulting on previous loans
- Having a history of late payments
- Excessive debt levels and high balances on revolving credit
- Limited credit history (e.g. young borrowers)
These factors damage your credit score, making lenders see you as a riskier borrower. The lower your credit score, the harder and more expensive it becomes to qualify for new financing.
Lenders view borrowers with poor credit as being more likely to default again in the future. To offset that risk, they charge higher interest rates and fees. Many traditional lenders also outright deny applicants with bad credit.
This leaves few good options for Texans with poor credit who need access to cash. But there are some specialized bad credit lenders that may still approve you. The tradeoff is you’ll pay more compared to borrowers with good credit.
In this guide, we’ll outline the main bad credit loan options available in Texas and tips for getting approved despite poor credit.
Types of Bad Credit Loans in Texas
For Texas residents with poor credit seeking quick cash, there are several loan options to consider even with bad credit. These loans allow borrowers to get money fast without going through an intensive credit check. However, they often come with very high interest rates and fees.
Payday Loans
Payday loans are a common option for bad credit borrowers in Texas. They provide an advance on your next paycheck, usually $500 or less. You give the lender access to your checking account and write a postdated check for the loan amount plus fees. On payday, the lender deposits the check. Payday loans charge service fees that are equivalent to APRs over 400%.
Title Loans
With a title loan, you use your paid-off car as collateral to borrow money. The lender places a lien on your car title in exchange for the loan. Title loans have APRs capped at around 300% in Texas. If you can’t repay the loan, the lender can repossess your car.
Pawn Shop Loans
At a pawn shop, you use an item of value as collateral for a loan of up to 70% of the item’s value. If you don’t repay the loan plus fees within 30 days, the pawn shop keeps your item and sells it. Pawn loans often have APRs of 240% or more in Texas.
Installment Loans
Installment loans provide larger loan amounts repaid over many months in fixed installments. They are available from direct lenders, credit unions, and online lenders. Applicants with low credit scores may qualify. However, APRs can exceed 400% for bad credit installment loans in Texas.
Payday Loans
Payday loans are small, short-term unsecured loans that borrowers promise to repay out of their next paycheck. Payday loans allow consumers to borrow up to $500 usually for two-four weeks term against their upcoming paycheck.
The loans typically have very high APRs of 400% or more. Payday lenders require borrowers to write a postdated check that coincides with their next payday. If the account lacks sufficient funds to repay the loan amount, the lender will attempt to withdraw multiple times triggering overdraft fees.
The key feature of payday loans is their high cost. Legislation in Texas prevents rollovers or renewals beyond three, limiting the time that interest can accrue. Despite interest rate caps, the fees mean that rates can translate into APRs over 600%. Borrowers often take successive loans when unable to fully repay the balance.
Pros:
- Fast cash and approval decision
- Minimal eligibility requirements
- Funds provided rapidly
Cons:
- Extremely high APRs and fees
- Creates cycle of debt with rollovers
- Risk of overdraft fees
- Can damage credit if unpaid
Payday loans pose risks as they are expensive, short-term solutions. Borrowers may face a cycle of taking new loans to repay old ones. The fees and APRs mean the cost of borrowing can easily exceed the loan amount itself if rolled over multiple times. Payday loans should be used as last resort emergency funds, not long-term solutions.
Title Loans
Title loans are a type of secured loan where borrowers use their car title as collateral to receive a short-term loan. With title loans, lenders will give you a percentage of your car’s value, often around 25-50%, in exchange for the title.
Title loans typically have higher limits than payday loans, often from $100 to $5,500, but vary by state. Borrowers can usually get the cash quickly in one business day or less.
However, title loans also carry big risks. Because your car’s title is used as security, failing to repay a title loan could lead to losing your vehicle. Interest rates also tend to be very high, often exceeding 200% APR. Additionally, title loans often have short repayment terms of 30 days or less.
Compared to payday loans, title loans have higher amounts and let borrowers use an asset (their car) as collateral. However, they share similarities like high interest rates, short terms, and risk of losing the collateral if unable to repay.
Payday loans also don’t require collateral and have lower loan amounts. But they have similar ultra-high interest rates and short repayment periods as title loans. Both carry serious risks if borrowers can’t pay back the full balance when due.
Overall, title loans allow borrowing higher amounts than payday loans if you have a vehicle. But they still come with caveats like very high APRs and short terms that make them difficult to repay. Like payday loans, borrowers should avoid title loans if possible and only use them as an absolute last resort.
Pawn Shop Loans
Pawn shop loans allow you to use possessions like jewelry, electronics, musical instruments and more as collateral to secure a loan. The amount you can borrow depends on the value of the item, but often ranges from $100 to a few thousand dollars.
The loan terms at pawn shops are usually 30 days or less. This means you need to repay the loan plus fees and interest within 30 days, or the pawn shop legally takes ownership of your collateral. If you can’t afford to pay back the loan at the end of the term, you risk losing your item permanently.
Compared to other bad credit lending options, pawn shop loans have some advantages and disadvantages:
Advantages:
- Fast access to cash
- No credit check required
- You can extend the loan by just paying the interest if unable to repay the full balance
Disadvantages:
- High fees and interest rates – often 20% or more
- Risk of losing a cherished item if unable to repay the loan
- Small loan amounts based on collateral value
Pawn shops offer a simple way to get money quickly by putting up a personal item as collateral. But like other bad credit lending options, the fees and rates are very high compared to traditional loans. And failure to repay the loan risks forfeiting a prized personal possession.
Installment Loans
Installment loans can provide another option for borrowers with poor credit in Texas. These loans have longer repayment terms than payday loans, typically ranging from 6 months to several years. Borrowers make fixed monthly payments on the loan until it is fully repaid.
Installment loans are available from some online lenders as well as storefront loan providers in Texas. They tend to have lower interest rates compared to payday loans. However, the rates are still much higher than for borrowers with good credit, ranging from around 30% to 100% APR.
With an installment loan, the lender will deposit the full loan amount into your account. You’ll then make scheduled monthly payments until the loan balance is paid off. These set payments over a longer term can make installment loans more manageable than payday loans for some borrowers. However, missing payments can still lead to fees and negatively impact your credit.
Some things to keep in mind with installment loans in Texas:
- Loan amounts typically range from $500 to $5,000 or more
- Terms often range from 6 months to 6 years
- Fixed monthly payments are required until the loan is repaid
- Interest rates are typically lower than payday loans but higher than standard personal bank loans
- Approvals may be easier to obtain with poor credit compared to traditional loans
- Read the fine print carefully and make sure you can afford the payments
Overall, installment loans can be an alternative to explore for Texans with poor credit histories. Just be sure to compare interest rates and terms across different lenders. And have a repayment plan in place before taking out the loan. With the right approach, installment loans can potentially help rebuild your credit over time.
Other Bad Credit Loan Options
While payday loans, title loans, pawn shop loans, and installment loans are common options for bad credit borrowers in Texas, there are some other routes you can explore as well:
Credit Cards
Credit cards allow you to borrow up to a certain limit and pay it back over time. This can be an option if you need a smaller loan amount (a few hundred to a couple thousand dollars). The downside is that credit cards tend to have high interest rates, often 20% or more. So this option only makes sense if you can pay off the balance quickly. Look for cards designed for bad credit borrowers.
Loans from Family or Friends
If you have a friend or family member willing to lend you money, this can be much cheaper than a payday or title loan. But make sure to treat it like a formal loan – sign a contract and offer to pay interest. You don’t want to damage personal relationships over unpaid debts.
Credit Union Payday Alternative Loans
Many credit unions offer small, short-term loans as an alternative to payday loans. They typically have interest rates capped at 28% and application fees of no more than $20. These loans are only available to credit union members. If you don’t qualify for regular credit union membership, some have open “membership charters” that anyone can join.
401(k) Loans
If you have a 401(k) through your employer, you may be able to borrow against it. While not ideal, 401(k) loans usually have lower interest rates than other bad credit loans. Just be sure to pay them back promptly to avoid penalties.
Peer-to-Peer Lending
Peer-to-peer lending websites like LendingClub allow you to borrow directly from individual investors. Interest rates are competitive and this can be an option for bad credit borrowers. You’ll need to meet the platform’s credit requirements.
The key is exploring all your options and finding the most affordable bad credit loan for your situation. Avoid payday loans and title loans if possible, as their fees and rates can snowball. With some diligent research, you can find more reasonable alternatives even with poor credit.
Conclusion
Texas residents with bad credit have several options for accessing loans, but caution is advised. It’s important to carefully consider the terms and implications before borrowing.
This article has covered some of the most common types of bad credit loans available in Texas, including payday loans, title loans, pawn shop loans, and installment loans. Each has its own pros and cons.