Loans for single mothers

Census data shows that more single mothers than ever are living in poverty.[1. 4.1 Million Single-Mother Families Are Living In Poverty - Huffington Post] With an average income below $30,000 [2. Single Mothers on the Financial Edge - The Wall Street Journal], it’s difficult to get a college degree, buy a decent car or a home, or even have cash for emergencies. Many single moms have little credit history, or a less-than-stellar rating.

Student Loans

Federal student loans

The Good

Subsidized federal student loans can have their payments put off if a student puts school on hold. They have protections for borrowers who fall on hard times. Student debt doesn’t usually disappear after a bankruptcy, but the government offers repayment plans based on income.

There are forgiveness programs that wipe out part, or all, of a debt under certain conditions like disability. Some borrowers can “pay” off their debt by providing a public service like teaching. (If only all loans were like these!)

The Bad

Subsidized federal loans for undergrads might not cover the entire cost of a school year. The rest of the cost of attending school can come from unsubsidized federal loans, but their interest has to be paid even during school enrollment.

Grad students have the biggest challenge. Perkins loans only pay a limited amount per year. The balance can come from PLUS loans, but those start accruing interest and demanding payments right after the student receives the money.

How it works:

Fill out the Free Application for Student Aid (FAFSA).
The school sends an offer of financial aid including loan information.
The government pays the interest while the student is in school, and during a grace period after enrollment ends.

Many single mothers will qualify for Perkins loans even if they have less-than-perfect credit history.

But how to pay for a more expensive school when federal loans don’t cover it all? Read below.

Private loans

These come from banks and credit unions which will want either a good credit history or a cosigner. A financially-stable cosigner can reduce the amount of interest charged. Private loans have a lot of fine-print problems to watch for: variable interest rates, early repayment penalties, interest that isn’t tax-deductible, and no deferments in case of illness or deployments.[3. The Many Pitfalls of Private Student Loans - New York Times] Instead of private loans, check out peer-to-peer lending described below.

Home Loans

Federal house loans

Get pre-qualified for a Federal Housing Administration (FHA) loan and look for a Housing and Urban Development (HUD) home. If country living appeals, Rural Development loans are offered by the US Department of Agriculture (USDA). All of these government-sponsored loans don’t depend on a normal credit history if the borrower has a proven track record for paying things like rent and utilities.

Veteran’s Administration (VA) loans can help military veterans and their families buy homes, too. There is no need for mortgage insurance and the government backs all the financing.

Private loans

Be warned, just like with private student loans. Banks and credit unions want good credit ratings and stable job history. After the housing crisis of 2007-2009, we all know someone who lost their home to unfair mortgage practices. Check and double-check any too-good-to-be-true home loan offers from the bank. Instead, check into peer-to-peer lending described below.

Personal Loans

Peer-to-Peer Lending

LendingClub and Prosper are two lending companies that screen potential borrowers and assign them a rating and an interest rate based on perceived risk. They often qualify someone that a bank would reject. The borrowers receive funding from private lenders who choose to help them, and pay back the loan at a fixed interest rate in fixed payments to the company. This type of loan can consolidate other debts, finance school, a car, or a down payment on a home.

Signature Loans at Banks and Credit Unions

These are based on satisfactory credit ratings and history and may have high interest rates and fees. See the section on private loans. Check the fine print with a magnifying glass.

Home Equity Loans and Lines of Credit (HELOC)

Secured by the value of the home the borrower owns, these depend on a good credit history and having a home that is worth more than is owed on it. If the home is sold, any outstanding debt must be paid in full.

Balance Transfer on a Credit Card

Some credit card companies like Citi will offer a borrower with good credit history the option to transfer cash into a checking or savings account. There’s usually a flat fee up front. The time frame for repayment can up to a year or more without interest, or with low interest.

Borrowing from a Retirement Account

It’s easy to say you won’t do this until your back is up against the wall. Keep this as a last resort. There are lots of restrictions on how much can be borrowed and for what reasons, and even tax penalties for not paying it back.

Emergency Loans

Pawn Shops

This is basically a collateral loan against property owned by the buyer, such as jewelry or a television. If the buyer defaults on payment, the pawn shop keeps the item. It’s rare to get a cash amount even close to the actual value of the thing pawned, but it’s the lowest risk of the three options because it doesn’t affect a credit history if there’s no repayment.[4. Things Everyone Should Know Before Going to a Pawn Shop - National Pawnbrokers Association] No harm, no foul. Unless the item pawned is something sentimental that can’t be replaced, of course.

Cash Advance from a Credit Card

Never a good idea, most cash advances have fees and ridiculous interest rates (20% or more) starting immediately after the cash is withdrawn.

Payday Advance Loans

Also an ugly choice, these have big fees and high interest-rates. Plus, if the borrower doesn’t have enough in their bank account to cover the check they wrote for the loan, the bank might charge for an overdraft.[5. Quick and Easy Cash? - About.Money]

Auto Loans

Traditional Car Loans

Offered at the dealership, or through a bank or credit union, these have interest rates that depend on the borrower’s credit history and rating. Go for simple interest loans over pre-computed loans, which are the worst deal. They have penalties for early repayment and payments go to interest first before reducing the principal, or actual value of the loan.

Equity or Title Loans

If the borrower’s home is worth more than is owed on it, this type of loan can pay for a car and the interest is usually tax-deductible.[6. Auto Loan: New & Used Car Loan Options - America's Debt Help Organization]

Alternative Sources

See the description of peer-to-peer lending above. Also consider organizations like Ways to Work which help single mothers who can’t get a loan elsewhere.[7. Loan Eligibility Criteria - Ways to Work]

Business Loans

Small Business Administration (SBA)

Whether it’s to start-up a small business selling crafts on Etsy or opening up a brick-and-mortar restaurant, the SBA offers a lot of help. They sponsor microloans, too.[8. What SBA Offers to Help Small Businesses Grow - SBA.gov]

Microloans and Peer-to-Peer Lending

Sometimes banks won’t loan to a startup because the amount they need is too small. That’s where microloans save the day. They began in less-developed countries as a way for people without regular banking access and tiny incomes to get business loans. Turns out America has plenty of need for this too. Organizations like Grameen America and the Opportunity Fund now offer microloans stateside. Peer-to-peer lending also helps small businesses grow.