Those of us who routinely utilize web-based services to manage finances may have noticed an increasingly popular form of loan being promoted in the accompanying banner advertisements that flank most webpages. “No credit check” loans have been making their rounds on the online scene, and have steadily risen in popularity.
The nature of the loan seems self-explanatory enough at first glance, but when it comes to managing personal monies one can never be too careful. The finance sector is permeated with a flurry of obfuscating terminologies and a veritable array of coldly calculated plans optimized to work in the house’s favour. Even the savviest client is liable to making a mistake should he neglect to do his research.
No credit check loans can work in your favour if your credit history prevents you from seeking conventional options, but the accompanying risks stack up accordingly and greater understanding of the system will go long way towards mitigating said risks. It always pays to be prudent, and as such we’ll herein explore no credit check loans in greater detail.
What are no credit check loans?
Let’s get the most obvious detail out of the way – no credit check loans are characterized by well, having no credit checks! Squarely what it says on the tin, such loans offer the omission of the usual background credit check, and this is its most distinguishing factor from conventional lenders. They do however, need assurance in some form that you’ll be able to make repayment, and for this purposes will look at your current income.
Besides that, no credit check loans typically operate on short term loan periods generally lasting no more than a few weeks to a month at maximum. Discerning readers will have noticed that the aforementioned features thus far bear striking resemblance to the notorious payday loans and indeed, most advertised no credit check loans are for all intents and purposes, essentially payday loans.
Similar to their payday counterparts, no credit check loans are notorious for commanding extremely high fees. This is a necessary evil, as the omission of credit checks places a great deal of risk upon the lender. Without the safeguard of a background check to ascertain a client’s likelihood to default, the lender places itself in a precarious position. Accordingly, lenders will hedge their incurred risks by greatly raising interest and late repayment fees. Most require some form of collateral such as a car or property, especially when the request loan period is longer. For these reasons, no credit check loans are well-known for staggeringly high annual percentage rates (APRs) that average around 426%, with 3-digit figures being less common but far from unheard of.
When should no credit check loans be considered?
Frankly, no credit check loans should only be considered as a viable option when all other alternatives are not available and borrowers are in dire need of cash.
Before considering loans of any variant, it is best to first have your credit score evaluated to get the best idea of where you stand and the leverage available to you when negotiating terms. As far as possible, conventional loans should be preferred and if the discrepancy is not too large, it may even be advisable to try and build enough credit to qualify for such loans.
Should all other options be exhausted, no credit check loans can eventually be considered. The expedited approval time is much appreciated and omission of a credit check is a definite boon for those whose credit scores aren’t eligible for any other form of loan. Cash with strings attached is still better than no cash.
That being said, that’s about all the kind words that can be said about no credit check loans. It doesn’t take much for these arrangements to quickly turn around and work against the borrower. The aforementioned high fees that such loans demand mean that even punctual repayment will end up with the borrower sustaining a significant loss overall. This puts him at an even worse position than what he started with. This is especially troubling when we consider the demographic that would be most prone to taking up no credit check loans. Those with poor credit scores can’t be in the best of financial straits, and every loan of this type that they commit to leaves them worse off than when they first started, which may necessitate another loan in the next period, and thus a negative downward spiral is born. All this considers merely the ideal situation when punctual repayment is possible, in the event of late repayment, borrowers will become liable to stifling penalties and in extreme cases even stand to lose their posted collateral. Indeed, most governments recognize the pitfalls that such loan systems pose and see the need to intervene through fee restriction and interest ceilings.
A word about scams
Considering the key demographic that such loans cater to, it is not surprising to learn that this forms a natural breeding ground for unscrupulous lenders that seek to capitalize on the desperation of the vulnerable population that may consider no credit check loans.
The most common offences include hidden or false fees. Lenders may disguise these as “administrative charges” or simply not at all. These fees are actually falsely tacked on and grant you absolutely nothing in return. Genuine lenders will often inform the client what to expect upfront and will be able to readily explain any related queries. Be very wary should your lender suddenly ask for anything that wasn’t already discussed during the initial negotiations, or if they sound unnecessarily vague when confronted with inquiries.
Also be wary of what information you’re disclosing. Due to the omission of the credit check, there’s little legitimate reason for lenders to ask for your Social Security Number (SSN). Be very wary should your lender request this information from you, lest you wind up a victim of identity theft which ironically carries the very real risk of damaging your credit score even further.
In conclusion, there remains only the smallest number of situations wherein no credit check loans could be seen as a favourable or even acceptable option. When possible, always seek conventional loans from reputable lenders such as established banks and financial institutions. Even if your credit score is poor, peer-to-peer lending or credit building should be considered before turning to no credit check loans.
Considering the hefty accompanying fees and potential repercussions, no credit check loans are a sort of financial zugzwang that at best, break even even under ideal situations. More often than not, such loans carry a disproportionate amount of risk that far outweighs the potential benefit. Should the need to take up a no credit loan truly arise, treat it as only a one-off, short term measure rather than as a long term solution. And as with any loan option, always read the fine print and never go in blind.
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