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What Are Second Chance Loans?

21 Apr
What Are Second Chance Loans?

Second chance loans are intended for those with poor credit who are unable to receive traditional loans from traditional lending institutions. These loans are classified as subprime financing. As a result, Second chance loans are highly popular on internet marketplaces and may have higher interest rates.

Why Second Chance?

With an inadequate credit history, it might be difficult to qualify for a loan from traditional banks and private financial institutions. Rejection is always painful and upsetting, yet it is an unavoidable part of life. When a customer has recently been denied a loan, second chance loans provide them with additional options to receive funds and demonstrate that not all doors are closed to them.

How Do They Work?

Second chance loans can take several forms. The first kind is a long-term loan that people often utilize to finance large purchases, such as a 30-year mortgage. However, it is often intended to be used as financing to buy a car. Another type of second chance loan has an extremely short repayment period, often as little as a week or two. Instead of being paid off via monthly installments, this loan type must be paid in full with one lump sum at the completion of the term. This final sort of borrowing is not large in size, ranging up to $2500, and is lent by lenders that specialize in short-term, high-interest loans that are to be paid back with the borrower's next payday.

Now About The Obtaining Process

Second chance loans are well-known variations of payday loans or cash advances and are particularly popular among Americans, with 12 million borrowing them each year. These products are unsecured money thus do not require collateral as a guarantee against the debt. To apply for unsecured second chance loans, borrowers only need a proper internet connection and stable employment or income source.

Customers must be willing to give some personal information about themselves in order to apply for cash advances. This information is often completed in a matter of minutes on the application form supplied by the borrower's selected platform. When a request form is filled out and submitted, it is transmitted to the third-party lenders that operate with the website. Lenders make decisions quickly and send their final decisions via email. If the borrower wishes to continue working with the lender, he must sign an agreement as proof of consent, and the funds will be transferred immediately into his bank account. The entire procedure of receiving second chance loans without even leaving your house is as easy as this.

Second Chance Borrowings Come with Advantages

Here they are:

  1. You do not need to pledge your assets against the money because these products are collateral-free.
  2. As they have fewer restrictions on terms and conditions regarding credit scores, payday advances are available to a broader range of people.
  3. The borrower is free to spend the cash amount in any way he sees fit.
  4. The lenders never run a credit check.
  5. The money is available in less than 24 hours.
  6.  Lenders immediately transfer the second chance payday amount into the consumer's bank account.

However, They Have Disadvantages As Well

Among them are:

  1. Finding a product with reasonable rates and terms may take too much time, as the internet is filled with millions of offers. 
  2. It is too easy to fall victim to scammers who will try to steal personal information and money in exchange for promises.
  3. Second chance payday advances won’t help borrowers to build a borrowing history.

Interest Rates

Payday lenders usually charge a price-per-$100 cost, which is typically from $15 to $25 for every $100 borrowed, to avoid mentioning their triple-digit interest rates. The annual percentage rate (APR) for second chance payday loans may be calculated in a few easy steps:

  • First, subtract the financing charge from the loan amount.
  • Next, multiply the result by 365. 
  • Third, remove the loan term from the total.
  • Finally, add the % sign and move the decimal two places to the right.

Who Borrows Second Chance Payday Loans 

The convenience of borrowing and quick access to funds make payday lending desirable to many customers, particularly those with little or no access to traditional credit. These products are advertised on television, radio, the internet, and primarily to working individuals who are unable to make ends meet from paycheck to paycheck. As a result, the vast majority of second chance payday advance users are working-class people attempting to cover emergencies and other necessary expenses. A typical borrower possesses one or more of the following traits:

  • Young age
  • Family
  • Limited credit availability
  • No other form of credit available
  • Graduated from high school
  • Does not own a home
  • Depends on Social Security payments
  • Borrowed from a pawn shop in the last five years
  • Filed for bankruptcy within five years
  • Made late payments on a mortgage or consumer debt in the last year

How to Spend the Money

Despite the fact that the loans are touted as being useful for unforeseen situations, seven out of ten borrowers use them for regular, recurrent costs such as rent and utilities. Generally, the funds are appropriate for small purchases or expenses such as small medical bills, brief trips, routine shopping, and so on.

A Piece of Advice

Before considering a second chance loan, consumers should ensure that they do not qualify for standard financing from a bank or other lender, which is typically less expensive and less risky. However, if you're looking for a second chance payday loan, be sure you just borrow what you need and that you can return any money you borrow.