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No Credit Check Loans Are Making a Comeback. Here’s What You Should Know ASAP
Credit scores are the rock of the loan industry. Lenders use them as indicators for whether you’re worth the risk or not to grant a loan. It can be why you are able to purchase a car, cover moving expenses, or be able to start a business.
The Corporation for Enterprise Development reported in 2015 that 56% of consumers have a poor credit score (below 600). If you’re one of the many with a poor credit score, that can be a major obstacle for getting a crucial loan. As threats of a loan rejection loom, you may be tempted by lenders promoting no credit check loans. These lenders promise they’ll grant you a loan even without that ideal credit score. Borrowers often find search for this type of lender when they need an emergency loan.
If this sounds too good to be true, it’s because it is. These no credit check loans can be more financial trouble than they are worth. It often draws consumers deeper into debt.
Where To Get A No-Credit-Check Loan
While no credit check loans are not exactly common, there are ways to find these lenders. Examples include payday lenders, pawn shops and auto title lenders. You can probably find stores for all three of these sources nearby, since 73 percent of payday loan borrowers visit a store for a payday loan nationwide.
Dangers of No-Credit-Check Loans
Lenders aren’t stupid. They realize they are dealing with people who very well may not pay back a loan. Lenders take precautions to avoid losses at the expense of the borrower. Be aware of all of the ways your loan may be helping the lender more than it helps you.
Typically payday loans, and tribal loans and lenders, are around $500, which you must pay by your next paycheck. Along with the loan amount, there are usually exorbitant fees up to 400 percent APR. For the sake of your next paycheck, avoid payday loans.
Pawn shops will grant a cash loan about 40 percent of the value of the item you pawn along with a monthly interest of up to 25 percent. If you don’t make the full payment within a specified amount of time, the shop is allowed to sell your item. In the end, the borrower loses in both scenarios.
Auto title lenders may be the most dangerous of them all. According to the Federal Trade Commission, loans range from $5,500 to $10,000. Lenders demand your car as collateral along with monthly interest fees. If you cannot adhere to the loan terms, you’ll lose your car and money.
Scam, Scam, Scam
If you think legitimate no credit check loans are bad, wait until you encounter a no credit check loan scam. “Scams are ever-changing,” says Katherine Hutt, spokesperson for the Council of Better Business Bureaus. Hutt is referring to the $1.48 billion consumers lost in 2018, an increase from $905 million lost in 2017, as reported by the Federal Trade Commission.
One type of no credit check loan that consumers often fall for are loans from loan sharks. A loan shark will lend money without a credit check and charge fees much higher than a payday or tribal lender. And to make matters worse, if you can’t pay the loan back, your life could be threatened.
Checking if the company you’re dealing with is registered by your state is a solid sign of a scam or not. Refusing to disclose fees or requiring upfront payments are also red flags. Do your research about loan companies and consider all of your options before going through with a no-credit-check loan.