The Truth About No Credit Check Loans
Before you pursue a “No Credit Check Loan,” here are the 5 simple facts you need to know.
Do you know your credit score? And—just as importantly—are you happy with it? Most of us aren’t. According to a recent Chase survey, two thirds of Americans want to improve their credit score, and for good reason. A high FICO score will save you money on interest rates when borrowing money. It can also help you get the next apartment or used car you want, or even help you get that job that comes with a bigger paycheck—so you can get the condo or new car you really want).
A no credit check loan is exactly what it sounds like: a loan in which the lender does not check your credit score. It’s a fairly simple concept with some pretty big implications.
A no credit check loan can sound great. You get the money you need now, your lender doesn’t need to check (and judge) your credit score, and you get to move on with life. Simple, right? Well, like all major financial decisions, pursuing a no credit check loan is something you’ll want to consider carefully. There are right ways—and very wrong ways—to get the money you need now through a no credit check loan.
In this article, you will learn the basics about credit, what a “no credit check loan” is, and how to get the safest no credit check loan possible.
1. What is credit?
There are purchases and expenses in life that simply cost too much for most of us to afford at one time: funding an education, buying a home, financing a major car repair. In these situations, most people rely on savings or credit. If you’ve got a healthy savings account, great! If not, you’ll want to understand how to manage your credit correctly so you can deal with unexpected expenses and keep up with your major bills.
Credit is the modern system that allows consumers to spend money that they don’t quite have yet. In essence, when you’re using credit, you’re borrowing money. You’re expected to pay it back plus interest (which is the fee the lender or creditor charges you to borrow that money).
So how much of this credit is yours to spend? That number is called your credit limit and it’s determined by several factors including your credit score and credit history. All of this data is collected by credit bureaus and compiled into your credit report. Your credit report contains a number called your credit score, which measures how likely you are to repay your debts. If you borrow money and pay it back promptly, you can expect your score to rise. Max out your credit card and never pay it back and you can expect your score to drop. The lower your score, the less “creditworthy” lenders will view you.
A low credit score can have a major negative impact on your life. You can be denied places to live by landlords, charged higher interest rates when creditors do lend you money, and even be rejected by potential employers.
Score are graded on the FICO system, between 300—850. The higher your score, the more creditworthy you’ll seem tp lenders.
If you don’t know your credit score, you can check it out here at FreeCreditReport.com.
Bottom line: Credit is a great financial tool when used and managed wisely. When used recklessly, credit can cause severe financial problems that can take years to erase.
2. What is a no credit check loan?
All right, let’s say you’ve checked your credit and you have a score of 600. That would be considered “subprime”—meaning less than average. The good news is you can improve that score over time. (You can read more about that here in the OppLoans blog.) The bad news is that you still need money now and the bank has just denied you a loan. So what are you going to do?
You may find yourself pursuing a personal loan which is, simply, a financial transaction between a borrower and a lender. The borrower is requesting the use of the lender’s money now in the form of a principal loan amount. The lender then must decide whether or not to approve the loan, and if they do, how much to charge the lender for the privilege of borrowing the money. (This is called “interest.”) The loan principal and interest are always expected to be paid back at the end of the loan term.
So how does the lender decide if the borrower is creditworthy? They can do this several ways, but one method is to check the potential borrower’s credit score and credit report. If you have good credit, then you’re likely to be approved for many loans from traditional financial institutions like banks and credit unions. But in our example, a FICO score of 600 will likely send you looking for lenders who don’t check your credit, lenders who—in other words—offer no credit check loans.
3. Are no credit check loans safe?
There are many different types of no credit check loans. You may be offered a no credit check loan in the form of a personal installment loan, a payday loan, a title loan, or other forms of loans. Some of these are safe, responsible, financial decisions that you can make today to address your immediate need and position yourself for future financial success. Others, however, are predatory loans designed to trap borrowers in cycles of debt for months, or even years, to come.
No credit check loans are offered by both safe, legitimate lenders and predatory lenders alike. What distinguishes between a safe and a dangerous financial product can be broken down into three main differentiators: rate, term, and ability to repay.
- Rate: Rate is the cost of borrowing money. This is generally expressed as either the “interest rate”—the percentage of a principal loan amount charged to a borrower—or, if you extend that number over the course of a year, the annual percentage rate (APR). While it’s important to understand both the interest rate and the APR, the APR is the more critical number to consider when evaluating a loan. For instance, if you borrow $100 at an APR of 400%, that means over the course of a year, you would pay back $400 just for the “privilege” of borrowing $100 now.
- Term: Term is the period of time between the funding of a loan and when the principal and all fees must be repaid. Generally, the longer the term, the lower your monthly (or weekly, or biweekly) payments. Similarly, the shorter the term, the higher your payments. Short terms of two-weeks or thirty days are closely associated with predatory payday and title lenders.
- Ability to Repay: Checking a borrower’s ability to repay is the single most important identifier of a reputable lender—whether it’s a mortgage broker, a personal installment lender, or other lender. If they’re evaluating whether or not you can actually repay your loan, that’s generally a good sign. For instance, socially responsible lenders will look at your income, employment, and banking history, and make a determination about whether or not you will be able to afford to make your payments according to the interest rate and term of your loan. Lenders who do not consider your ability to repay are likely trying to take advantage of those in need. They do this by trapping customers in short-term, high-interest loans that are exceedingly difficult to repay. When the borrower cannot make their payments, the predatory lender will try to “roll” them over into a new loan (with new fees) or “repossess” any collateral used to secure the loan, like something as valuable as your car. Gulp!
Once you understand the rates and terms that a potential lender offers you (and they’ve checked your ability to actually repay the loan), you can further evaluate the lender by checking their customer reviews online and with third parties like other online lending platforms and the Better Business Bureau.
Ask yourself, does this lender have happy customers who leaving glowing reviews and high ratings, or do customers scream at them online and beg others to stay away? Does the lender have a high rating on BBB.com, a low one, or none at all? Can you find the lender on reputable financial websites like LendingTree and CreditKarma.com or are they nowhere to be found outside of their own website—which could disappear at any time?
Do your homework and you can find a safe, no credit check loan from a reputable lender accredited by the Better Business Bureau.
Bottom line: No Credit Check loans can be very safe, or very dangerous—depending on your lender and the rates and terms they offer.
4. What types of no credit check lenders should I avoid no matter what?
If you’re seen as a high risk borrower with a low FICO score, there are still many lenders who will try to do business with you. The hard truth though is that the vast majority of these lenders are predatory and are simply trying to take advantage of the financially vulnerable. Here’s what you should know before endangering yourself and your money.
A predatory lender is an online or storefront lender who offers loans at very high annual percentage rates (APRs) or for short terms or both, to those who very likely will not be able to pay the loan back. Examples of predatory lenders include payday and title lenders, and even pawn shop brokers. No matter how attractive that no credit check short-term loan from a predatory lender might seem, you should always stay away. Predatory lenders didn’t earn that nickname by playing fair with their customers. Here’s what you need to know to stay safe:
Payday Lenders: You’ve probably heard quite a bit about payday lenders. They’re frequently in the news—and always for the wrong reasons. The Consumer Financial Protection Bureau has called payday lending “debt traps.” Short terms averaging only 14 days, high interest at nearly 400 percent, penalty fees and the high risk of rollover make payday loans a perfect storm of predatory lending practices.
Auto Title Lenders: Is there anything worse than a payday lender? Yes, and they’re called Auto Title Lenders. You’ve probably seen their storefronts and TV commercials. They promise quick cash loans, and the average principal amount is $940. However, the average time it takes to repay is 10 months, during which the borrower pays a shocking $2,140 in interest and fees. That’s outrageous and what makes it even more predatory is the consequence of not paying it back. These loans are called “title loans” because they require borrowers to sign over their car (or motorcycle or boat) titles to the lender. If and when you can’t repay, the lender “repossesses” your car. How are you going to get to work now?
Pawn Shop Brokers: Say you need some quick cash but don’t want to sell any of your valuables. You might find yourself considering pawning something pricey that you own—a guitar, a computer, a power tool. If you take it to a pawnshop, the pawn broker may give you a small loan based on a fraction of the perceived value of the item and then keep your valuable. The only way you can get it back is to pay back the loan and the interest—as high as 240% or more. If you can’t repay (and many can’t), you lose that item you were trying to avoid selling in the first place. A great deal for the pawn broker, a heartbreak of a deal for you.
5. How can I get a safe no credit check loan?
Like all loans, the safety and responsibility of no credit check loans vary from product to product, and lender to lender. The best way to tell if your no credit check loan is safe or not is to ask yourself the following questions:
- Is this loan secured or unsecured? As discussed, a secured loans mean that the borrower has to put up a major piece of collateral (like your car) to secure the loan. If you do, you can easily find yourself losing that vehicle, which, in turn, can make it hard to get to work and to get more money. If it’s a secured loan, it’s probably not safe for you. Look for unsecured personal installment loans rather than predatory payday or title loans.
- Does the lender consider my ability to repay? Are they looking at your employment and paychecks and factoring in how likely it is that you’ll actually repay the loan? If they’re not then they are probably trying to walk you into a cycle of debt.
- What kind of reviews does this lender have online? Check Google, Facebook and elsewhere. What do their customers say about them? Are the customers happy and satisfied with the financial products they received? Or are they furious with the lender who offered them 400% APR on a short-term loan?
- What kinds of rates and terms does the no credit check lender offer? To find a more affordable no credit check loan, choose an installment loan instead of a payday loan. An installment loan will afford you the ability to repay over time—up to 36 months, rather than just a simple two weeks.
A no credit check loan can be a useful and responsible financial choice, if it’s made correctly. If you need money now, for any reason, and you have a low credit score—whatever you do—don’t settle for a dangerous predatory loan that will leave you and your family in worse financial shape than you may be now.
By understanding what credit is, why it matters, and what your credit score is, you can take the necessary first steps to finding a safe, no credit check loan from a reputable, socially responsible lender. Knowing the dangers of predatory lenders and their toxic products like payday loans, title loans, and pawn shop loans will help you avoid them—even though they’re aggressively marketed as fast cash solutions for the financially vulnerable. And finally, once you have identified safe and responsible lenders, reviewed their BBB accreditations and customer reviews, you’ll be informed and ready to find the right no credit check loan for you.
If you’re looking for a loan that’s safe, responsible and affordable, consider applying today with OppLoans.
OppLoans is the nation’s leading socially-responsible online lender and one of the fastest-growing organizations in the FinTech space today. Embracing a character-driven approach to modern finance, we emphatically believe borrowers deserve a dignified alternative to payday lending. Highly rated on Google and LendingTree, OppLoans is redefining online lending through caring service for our customers.
- Mettler, Chris. “Two in Three Americans Want to Improve Their Credit Score.” CompareCards.com. Accessed December 7th, 2016 from http://www.comparecards.com/blog/two-in-three-americans-want-to-improve-their-credit-score/
- “What is the ability-to-repay rule? Why is it important to me?” ConsumerFinance.gov. Accessed December 7th, 2016 from http://www.consumerfinance.gov/askcfpb/1787/what-ability-repay-rule-why-it-important-me.html
- Silberman, David. “We’ve proposed a rule to protect consumers from payday debt traps.” ConsumerFinance.gov. Accessed December 7th, 2016 from http://www.consumerfinance.gov/about-us/blog/weve-proposed-rule-protect-consumers-payday-debt-traps/
- Sullivan, Bob. “Pay $2,140 to borrow $950? That’s how car title loans work” NBCNews.com. Accessed December 7th, 2016 from http://www.nbcnews.com/technology/pay-2-140-borrow-950-thats-how-car-title-loans-1C8703205
- Reiter, Margaret. “Disadvantages of Pawnshop Loans” NOLO.com. Accessed December 7th, 2016 from http://www.nolo.com/legal-encyclopedia/disadvantages-pawnshop-loans.html