Low Income Loans

There aren’t numerous low interest borrowing opportunities available for those on a low income or with bad credit. However, there are options available if you know where to look and understand what is suitable for you based on your circumstances. Not all loans are created equal and taking on the wrong loan can put you in a worst off position.

There are definitely loans out there which you should steer clear from or only use as a last resort. It is important to understand the terms that you are being offered and to really review the fine print in great detail.

If you are taking out a loan to pay household bills or living costs (rent, groceries, utilities, etc.) it is highly recommended that you speak to a credit counselor to work through your financial issues instead of piling on debt.

Below is a list of borrowing options which may come with a lower interest rate than some traditional forms of lending.

Small Dollar Loans – This is an initiative sponsored by the Federal Deposit Insurance Corporation (FDIC). It launched in Feb 2008 as a two year pilot with 28 banks across the country. They provided small loans up to $2500 over a 90 day period.

Whilst this program has finished, many banks have chose to continue offering similar services. One such bank in the Massachusetts area is BankFive and their loan program is called The Affordable Smart Dollar Loan.

Check with your bank to see if they have a similar service or what type of low income loan products they may have available.

Salary Advance Loans – In an effort to provide borrowers with a more affordable alternative to payday loans, many Credit Unions created Salary Advance Loans. These loans are typically for amounts between $50 - $500 with little to no fees and an interest rate generally around 18%. They can be a great alternative to other high interest short-term loans. The repayment period for these types of loans is around 30 days.

Stretch Pay Loans – This is another product provided by Credit Unions. They are small loans but unlike Salary Advanced Loans can go up to $1000 and have a repayment period which can be up to 12 months.

Checking/Saving Account Advance – Similar to the payday loan concept, this service provided by many banks allows you access to a line of credit from upcoming deposits that are scheduled to go into your savings or checking account – like your pay check. There is a cost attached to this service and it’s usually a percentage of the amount you advance. This service is really to help those with unexpected emergency expenses.

Social Lending or Peer to Peer lending - This isn’t your traditional form of lending but is becoming more and more popular and is seen as a great alternative to banks and credit unions by many. Typically, these loans tend to be easier and quicker to get and come with a lower rate of interest and higher loan amount ($1000 - $10000). One of the more popular P2PL platforms is Peerform.

Auto Loans (for vehicle purchase) - A car is expensive to run and expensive to finance. For those who have poor credit histories, it can be impossible. Ways to Work is a charitable organization that specializes in helping such people get a car loan in the hopes that it will assist them to get a better job.

Home Equity - Borrowing against the equity in your home can have some great advantages – the interest rate is a lot lower and so are the installments. That said, you do need to realize that you are putting your home at risk if you fail to pay.

It can be a very efficient way to repay debt, as long as you manage it well. The mistake many make is that they consolidate their debt and then only pay the minimum monthly installment – this leads to them paying a lot more interest over a longer term.
A smart way to work is to apply the installments that you were paying to your credit cards, etc. to the home loan as well. That way you truly benefit from the low interest rate.

Signature Loan - This is essentially an unsecure loan or personal loan and is reserved for those with a good credit rating and solid proof of income. All banks will provide this type of loan and the approval criteria attached to them are fairly strict as it’s an unsecure loan.

Payday Loans - Payday loans have a bad reputation due to the costs (interest & fees) associated with taking on this type of loan. The flexible lending criteria has also come under scrutiny as many personal finance advocates feel that they provide funds to vulnerable people who should not be taking on any type of debt.

The approval criterion is generally a mix of the following:

- 18 years of age
- US citizen or permanent resident
- Have a checking or savings account
- Proof of employment (1 month)

Be very careful when considering a payday or short-term loan and be sure you completely understand the terms and costs associated with them. They have not received the negative publicity they have for no reason.