Picture this: You’re standing in front of your car, staring down at a brand new (and totally mysterious) dent in your door. Hit and run? Aggressive stray shopping cart? Who know?
What you do know is this is going to cost you money—money that you do not have on hand.
You used to have a $1,000 emergency fund, but that got eaten up when your boiler decided to die in the middle of January.
You’re going to need to take out a loan to pay for the repairs. There’s no way around it.
Oh, and here’s the kicker: Your credit score is only 590.
That means a traditional bank loan is out, as are most personal loans offered by online lenders. Those lenders will check your credit and could give you the boot pretty much immediately.
It looks like you’re going to consider a no credit check loan.
But before you sign that loan agreement, here are five things you need to know …
1. Stay away from payday and title loans
For real. If you have bad credit and need a fast cash loan, taking out a payday or title loan is probably the last thing you should do.
Both payday and title loans are short-term loans that come with interest rates around 15 to 25%. But those rates can be seriously misleading. When measured as an annual percentage rate (APR), payday loans have an average rate around 390%, while title loans have an APR of 300%.
What that means is they’re really, really expensive.
In addition to those high rates, these predatory loans are designed to be paid off in a single lump sum, which can be hard to do for many borrowers, which is why they will usually roll the loan over. Every time they do that, they increase the cost of their loan. That’s how a 15% interest rate can turn into a 390% APR! You can learn more in the article The High Cost of Payday Loans.
2. Make sure the lender checks your ability to repay.
This is something that a lot of payday and title lenders don’t do. That’s one of the reasons those loans are so dangerous.
With a traditional unsecured personal loan, the lender will lose money if you can’t pay your loan back. That’s why they always check to make sure that you can afford your loan.
But did you know that many no credit check lenders actually count on their customers not paying their loans back on time?
With predatory payday and title loans, borrowers who can’t afford their loans are more likely to roll the loan over and incur additional interest. Every time the loan rolls over, it becomes more and more profitable for the lender. Combine loan rollover with interest rates north of 300%, and you have a recipe for financial disaster.
Lenders that don’t confirm your ability to repay the loan are probably taking you for a ride. Do yourself a favor and just steer clear of them.
3. If possible, find a lender that does soft credit inquires
Just because a lender checks your credit score, that doesn’t mean they’re going to turn you down. And if they’re only running a soft inquiry on your credit, then applying for the loan won’t show up on your credit report.
There are two kinds of credit inquires: hard inquiries and soft inquiries. Hard inquiries return a lot more detailed information to the requester, but they also get recorded on your credit report. Too many recent inquiries can hurt your credit score, as it looks like you are desperate for a loan.
Soft inquiries, on the other hand, only return a more general overview and are not recorded on your credit report. So even if you think your credit score is so low that no lender could possibly approve you for a loan, you should still consider lenders that run a soft inquiry while processing your application.
For one thing, running a soft inquiry means that the lender is considering your ability to repay. That’s a good sign they’re on the up and up.
4. Don’t forget: Defaulting on a no credit check loan could still hurt your credit.
Even if a lender isn’t checking your credit score, failing to pay that loan back could (and probably will) negatively affect your credit.
Some no credit check lenders might report your late or non-payments directly to the the three major credit bureaus (Experian, TransUnion, and Equifax). If you default on your loan, the bureaus will know, and the info will go on your credit report.
And even a lender that doesn’t report info to the bureaus could still sell your unpaid debt to a collections agency. Once it’s been sold to them, that collections agency will likely report the unpaid debt to the credit bureaus.
Likewise, a lender or a collections agency could take you to court in order to reclaim the money that you owe them. These usually result in your wages being garnished until the debt is fully repaid. A court decision against you will also go on your credit report.
Lastly, there are other specialty reporting agencies beyond the big three. Some no credit check lenders will report payment information to these businesses. That info could be used to deny you a bad credit or no credit check loan in the future.
5. Do shop around
Remember, a loan is basically a product. So when you’re looking to buy one, you shouldn’t treat the process any different than shopping for a pair of jeans or a new carburetor.
Shop around! Different lenders are going to be offering different loan products with different terms and different rates. Even if it’s tempting, or you’re running short on time, don’t just take the first offer you receive.
One of the great things about online lending is that you have way more options than you would have just 10 or 15 years ago. There are lot of personal lenders that will let you apply for a loan online and will deposit the funds into your account once you’re approved.
Take a spin on Lendingtree to see what kind of loans are available to you, and make sure to check out the customer reviews to see what kinds of experience other people have had. Odds are, the right no credit check loan for you is out there somewhere. You can read more in Bad Credit Helper: How To Shop for a Credit Counselor.
- “Hard Inquiries and Soft Inquiries.” Credit Karma. Retrieved November 10, 2016 from https://www.creditkarma.com/article/hard_inquiries_and_soft_inquiries.
- “If I take out a payday loan, could it hurt my credit? Consumer Financial Protection Bureau. Retrieved November 10, 2016 from http://www.consumerfinance.gov/askcfpb/1635/if-i-take-out-payday-loan-could-it-hurt-my-credit.html.
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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.