Loans without credit check: why it is better to avoid them and what to do instead



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Borrowing money is possible if you have poor creditworthiness, but loans without a credit check are expensive and can lure you into the debt cycle. (iStock)

If you need some contingency cash but your credit isn’t good enough to qualify for a traditional loan, you might think that a loan without a credit check is a good idea. Borrowing money is possible if you have bad credit, but products without a credit check have exorbitant fees and should only be considered as a last resort.

Let’s take a look at how loans without credit checks work, why you should avoid them, and some alternatives to borrowing when you have poor or little credit.

What are loans without credit check?

When issuing a loan without a credit check, the lender does not check your credit report and score before deciding on a loan to you. To offset the risk of lending to borrowers with potentially poor credit history, lenders who do not have credit checks charge high interest rates and fees.

You can come across several different types of loans without credit checks, such as payday loans, property loans and installment loans.

Why do lenders check your credit?

Your credit report and score help lenders understand how you have managed your loan in the past and assess how likely it is that you will pay back a new loan. Because of this, a credit check is usually done when filling out a loan application. Lenders are not looking for a flawless credit report, but they are looking for stories of missed payments, collection arrears, or a bunch of recent loan requests. Have lower credit rating may affect the types of rates and conditions that are offered to you, and may even void your eligibility for a loan.

If you need a loan, Credible will let you compare loan rates for individuals to see what you can qualify for.

How do loans without credit checks work?

Most reputable personal loan lenders will check your credit before agreeing to provide you with a loan. The types of lenders that will not screen your credit before disbursing a loan often include payday lender stores, home loan stores, pawnshops, and online lenders.

To compensate for missing credit checks, these lenders usually charge high interest rates and commissions… Even if you don’t need to go through a credit check, you will still need to verify your identity and any sources of income.

Keep in mind that most non-credit check lenders do not make any effort to ensure that you will be financially capable of repaying your loan on time. This is how several different loans without credit checks work.

  • Payday loans – After receiving permission to participate in this small short-term loan, you will receive your funds in cash, check or direct transfer to your bank account. You must pay off the loan – plus any commissions or finance charges – by the due date, which is usually before your next paycheck, or within 14 days. Finance charges are usually based on the amount of the loan, and payday loans come with a commission that is equal to an annual rate of 400% or more, according to Consumer Financial Protection Bureau… To apply for one, you will probably only need to provide your ID, have a bank account, and prove that you have a stable salary.
  • Legal loans – When you get a loan secured by a car, instead of a credit check, you will use your ownership of a vehicle as a form of pledge to give the lender some confidence that you will repay the loan. You can apply for a title loan from a physical store or from a title lender’s online store. Secured loans usually range from 25% to 50% of the value of the car. To qualify, you must fully own a vehicle – it cannot currently be funded through a lender. To get a loan, you will need to bring your car, name, photo ID and insurance certificate to the loan store. Be careful – once you have signed the contract, you need to pay the full loan commission and interest as the lender retains ownership of your vehicle until you pay off your debt. You also run the risk of the lender getting your car back if you don’t pay off the loan on time. In many states, title loans are actually illegal.
  • Lombard loans – In some cases, secured loans may be cheaper than payday loans, but you risk losing the pledged item or paying an extension fee. Pawnshops accept items as collateral and in return provide a short-term loan in the amount of a certain percentage of the item’s value. If you pay off the loan with interest during the maturity period, you will receive the pledged item back. If you are unable to repay the loan, the pawnshop will try to sell your item for a profit.
  • Installment loans – A installment loan is a loan that you pay off in regular scheduled payments or installments. You can pay interest on each payment, and once you repay the loan in full, your account will be closed forever.

Trustworthy lets you compare loan rates for individuals from several lenders in one place.

Why are loans without a credit check usually a bad idea?

Loans without a credit check are extremely expensive. On average, a two-week loan is charged a commission of $ 15 for every $ 100, which equates to almost 400% per annum. On the other hand, a credit card usually has an annual interest rate of 12% to 30%.

Payday loans are considered a form of predatory lending because lenders usually do not make any effort to ensure that you can actually pay off the loan. So if you are already in financial difficulty, one of these loans may actually make your situation worse. Payday lenders ignore your other financial obligations when deciding how much to lend you, which can result in you biting off more than you can chew.

Some types of loans without a credit check actually go into a new loan if you do not repay them in full by the due date. When this happens, interest continues to accumulate and you may sink deeper into debt. It can take years to get rid of what you thought was short-term debt. Some lenders may use and charge you for other products that you do not need, which can further increase the cost of the loan.

What are the risks of a loan without a credit check?

Due to their high fees and interest rates, paying off a loan without a credit check can easily go awry. Let’s see how the sky-high annual payday loan income can increase compared to by credit card (which is also considered a form of high-interest lending, but much cheaper than a payday loan) for a 30-day period.

Payday loan

  • Loan amount: USD 500
  • Annual interest rate: 399%
  • Maturity: 30 days
  • Amount Due: US $ 663.97

Credit card

  • Loan amount: USD 500
  • Annual interest rate: 36%
  • Maturity: 30 days
  • Amount Due: US $ 514.79

These examples make it easy to see how getting a payday loan puts you at risk of increasing your debt, worsening your financial situation, further contraction of your credit, or – in the case of a property loan – losing some of your property. Of course, it’s worth noting that a credit card is most beneficial when you actually pay off the debt in one statement cycle. If you do not repay it within 30 days, interest will continue to be charged to your credit card balance.

Alternatives to loans without credit check

Loans without credit check are not the only way to get money when you need it. If you have bad credit, here are some options that can provide financial support without sky-high fees and interest rates.

Bad credit history.

A bad credit it is a type of personal loan designed for those with a bad credit history. You will borrow money from a lender and pay it back within a specified period of time.

What is the price: Has higher interest rates than traditional personal loans, but better rates than payday loans.

How to get it: Through selected private lenders

To whom it might be best: Those with credit on the downside

Loan from family or friends

If you have a friend or relative who is willing to help you, you can get a loan from them. You can make a formal agreement to make the loan more formal and avoid confusion.

What is the price: It depends on whether a friend or relative wants to charge you interest or commission. In many cases, a loan from a loved one is interest-free.

How to get it: Ask a friend or relative for financial assistance.

Who could it be better: Someone who is reliable and has a strong relationship who can be borrowed.

Credit union loan

Alternative Payday Loan or PAL is a type of personal loan that can only be obtained from a credit union. A credit union loan may be easier to apply for, and if you are ineligible, a credit union can work with you to help you become more eligible for the loan.

What is the price: Credit union loans often cost less than loans from commercial financial institutions.

How to get it: Apply for a personal loan from your credit union (note that you usually need to be a member of the credit union for at least one month before you can be eligible for a loan).

Who could it be better: Credit union members

If you are looking for an alternative to a loan without a credit check, compare the interest rate on an individual loans using Credible.


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