Welp. A kid just threw a baseball through your window and ran away before you could get his parents’ information. Now you need a loan to fix it. But what if your credit score isn’t exactly a home run? What are you going to do now?
It’s a fact of modern life: a “good” credit score (a FICO score of 680 or higher) can make little financial emergencies like these much more bearable. Unfortunately, just over half of American consumers have weak or bad credit.1 According to credit expert David Hosterman of Castle and Cooke Mortgage, “Customers with bad credit can have trouble financing a home, renting a home, obtaining credit cards, car loans, student loans, and more.” And it’s not a problem that goes away overnight. Hosterman says rebuilding credit can “sometimes take years to complete.”
So how can people with bad credit get a loan if an urgent need arises? One option is a “no credit check loan.” And if these loans sound too good to be true, it’s because they often are. Many “no credit check” loans are nothing more than financial traps designed to suck away as much of your paycheck as possible. Keep an eye out for these red flags before you end up in an unaffordable situation.
Be suspicious of lenders when…
1. They Don’t Care About Your Income
If a lender doesn’t want to check your credit, make sure that they do check your employment and income. Why? If a lender wants to verify that you’ll be able to afford to repay your loan, it’s a signal that they’re legitimate and not trying to walk you into a debt trap.
If a lender doesn’t check your credit or your income, then it’s likely that they’re trying to sell you a loan you can’t afford. This is a classic predatory practice, because if you can’t repay your loan, you’ll be forced to roll it over (extending the loan for another cycle) and you’ll pay additional fees to do it. Suddenly, you’re sinking further and further in debt, and your predatory lender is making more and more money directly from you.
This unfair practice is a hallmark of payday lending, and it can trap borrowers in unexpected debt for months or even years.
2. Short Payment Terms
Any good lender wants you to have a real shot at actually paying back your loan in full. A payday lender, on the other hand, wants you to be trapped into rolling over your loans so that you can give them money forever. They’ll require you to pay back the entire loan, with interest, after only a few weeks—and sometimes less!
Instead, find a lender that will offer you an installment loan. David Bakke, a finance expert at MoneyCrashers.com, says that one of the main benefits of installment loans is that they “usually come with fixed interest rates, meaning that you know what your monthly payment is going to be.” A good “no credit check” lender will be certain that you have a source of income and then work with you to create a repayment plan over a longer term that you can handle.
3. They Talk About Interest Rates Instead of APR
According to David Reiss, a law professor and editor of REFinBlog.com, “The annual percentage rate or APR shows the total cost of a loan, including fees and interest. APRs allow potential borrowers to make an ‘apples-to-apples’ comparison between loans. It gives you a full and clear picture of how expensive a loan really is.” In other words, it’s a number that many “no credit check” lenders would prefer you never see.
They’d rather show you a basic interest rate, even though federal law requires APRs be used in most cases. Not only can that hide all sorts of fees, but it forces you to do some pretty complex math if you want to actually know how much you’ll be expected to pay. Friends never make friends do complex math problems, so if a lender isn’t talking in terms of APR, they’re likely not your friend.
4. They Want Your Car Title
Some “no credit check” lenders will accept your car title in return for a loan. The car is serving as collateral, which means it’s being used to guarantee that you’ll pay. This might seem like a reasonable deal at first. After all, you’ll be fine as long as you pay it back, right? Well, that’s a pretty big “if.” Since the lender is holding your car’s title, they’ll be able to seize it if you don’t make your payments. In fact, a recent study from the Consumer Finance Protection Bureau found that 1 in 5 title borrowers will lose their car!2 You never know what financial surprises could happen and it’s too big a risk to gamble on—especially if you need your car to get to work. If you were in a desperate situation before, having to walk or catch the bus to work certainly won’t improve things. These loans are unsafe at any speed.
5. They Don’t Have a Customer Service Line
The best “no credit check” lenders should be willing to work with you to make sure you can pay off your loan, even if something unexpected comes up. That’s why having good customer service is so important. If you know you’re going to have trouble making a loan payment, you should be assured that there’s a number you can call for help. E-mail might feel like a more modern form of communication, but nothing is as efficient as talking to another actual person. There’s less potential for misunderstandings, and you don’t have to worry about whether they’re receiving your concerns. Any company offering loans to people with poor credit is either looking to help them or to take advantage of them (read more in How to Shop for a No Credit Check Loan). If they won’t even give you a way to talk to them, they aren’t worth your time or your trust.
6. They Have Bad Online Reviews
Much like a hotel or a restaurant, you want to be sure your lender has the best online rating possible. After all, you wouldn’t give your money to a burger place that makes people sick, so why should you give your money to a lender that’s trying to make you broke? You’ll get over that burger in a day or two, but a bad loan could make you nauseous for years. When people get ripped off, they don’t tend to be quiet about it. Heed their warnings. Taking just a few minutes to look at reviews could save money and pain.
The next time you need a loan, do yourself a favor and watch out for the red flags that indicate you’re dealing with a predatory lender. Seek out a safe and responsible loan. You’ll be able to repair that broken window without damaging your credit.
- Detweiler, Gerri. “Most Americans Have Bad Credit, Study Finds.” Credit.Com. January 30, 2015. Accessed on February 1, 2017 at http://blog.credit.com/2015/01/most-consumers-have-subprime-credit-report-says-107535/.
- “CFPB Finds One-in-Five Auto Title Loan Borrowers Have Vehicle Seized for Failing to Repay Debt.” ConsumerFinance.gov. May 18, 2016. Accessed on February 1, 2017 at http://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-one-five-auto-title-loan-borrowers-have-vehicle-seized-failing-repay-debt/.
David Hosterman is a credit and financial expert. He began working as a loan officer with Castle & Cooke Mortgage, LLC in 2008 and became a Branch Manager in 2015. David has been featured in CBS Money Watch, Forbes, MSN Money, and elsewhere.
David Reiss is a professor at Brooklyn Law School and director of academic programs at the Center for Urban Business Entrepreneurship. He is the editor of REFinBlog.com, which tracks developments in the changing world of residential real estate finance.
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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.