No-credit-check loans seem like your saving grace if you need to get loan approval despite a bad credit score. At least if you are one of the 2 out of 10 Americans who have poor FICO credit scores.
Having a bad credit score means a lot of things. Sometimes, it means you do not have enough credit history because you are young and have never needed to use credit in the past. Or it could mean you have a lot of debts and you haven’t been able to pay them back.
When you have a lot of debts to pay off, it puts you at a serious disadvantage. First of all, it shows that you have a problem with managing your finances. If you do not do anything about you, it can effectively compromise your financial future. Not only that, it restricts your limited financial resources. Your huge monthly debt payments will eat up the funds that you should have been using on your necessities. It will force you to live from paycheck to paycheck. That means it is easy to push you into debt because you do not have the extra money to get out of an unexpected expense.
Unless you do something about your situation, you are not far off from feeling a bit of a financial burnout. This makes you quite desperate to find a solution to improve your financial situation – even going as far as opting for risky solutions.
That is why some people go for no-credit-check loans are. While that makes it sound like a bad option to get a loan, it might be fair to get to know it better. That way, you can determine if it is a good idea for you to use it as an option to improve your finances.
What are no-credit-check loans?
A no-credit-check loan is a type of personal loan that is used by consumers for a lot of things. Reports reveal that the popular option to use it is to pay off credit card debts. Here are the important qualities of this type of loan.
No need for a hard credit inquiry
Just as the name suggests, no-credit-check loans mean the lender will not conduct a hard inquiry on your credit report. That does not mean they will not look at your record. But what they will see will be more to check if you are who you say you are, etc. They will not be given a lot of information – that means any bad credit reputation that you have will be hidden from them. A soft inquiry does not need your consent so they will also not reveal much about you. Not only that, it will not negatively affect your credit score – which apparently is already bad at the moment.
Small loan amount
There is a lot of risks involved with this arrangement -, especially for the lender. This is why you are only allowed to borrow a small amount. It will not be like a mortgage or car loan. You can only borrow up to $1,000 – usually, this is the limit. It is really only used to help consumers with small emergencies or when the borrower is short on cash.
Another quality of no-credit-check loans is that it is only for the short-term. It will not take years to pay off. Most of the time, it only takes a couple of months to completely pay it off. This is actually good because it will not keep you in debt for long – at least, only for this account. However, that also means you might have to make bigger payments.
Finally, this type of loan has a high-interest rate. Believe it or not, it is even higher than credit card debts. If there is no credit check, that means the lender will have nothing to prove that you are a low-risk borrower. To protect their interest, they will treat you as a high-risk borrower – leading them to give you a high-interest rate on the loan. Most of the time, you will not think that it is too much because you are only borrowing a small loan. But if you consider the percentage of the interest against the amount that you are borrowing, then you will realize how much you are really paying towards the interest.
Should you get no-credit-check loans?
Now that you know the different qualities of no-credit-check loans, do you really think it is a good idea to borrow one?
According to reports, despite the qualities of this loan, there are 12 million Americans who rely on these short-term loans. The report revealed that the typical amount that they are borrowing is between $15 to $100 and it has to be repaid after 14 days or so.
Obviously, these loans are borrowed to help consumers make ends meet until the next paycheck comes in. While we understand why some people are driven to borrow this loan, it does not mean they should keep on doing it. They can quickly find themselves stuck in a debt cycle if they are not careful.
Here are certain rules that you need to understand before you borrow no-credit-check loans.
Identify the real problem
Most people will probably say that the problem is their lack of income. On the surface, this is true. But most of the time, it is not the real issue. Sometimes, people fall short because they do not spend their cash wisely. Or maybe, they do not have an emergency fund for unexpected expenses. Make sure you identify the real problem so you can solve it. Otherwise, you will keep on finding yourself in the same position all the time.
Do not rely on it for emergencies
Since it is easy to borrow no-credit-check loans, it can be tempting to use every time you face financial problems. However, this quick fix is usually more destructive than it is helpful. It is only acceptable once or twice – but not as a regular solution. You need to have a separate emergency fund. Do not rely on it for emergencies. Otherwise, it will only make your financial situation worse.
Make it your last resort
Do not make a habit of borrowing this type of loan as your first solution to a financial problem. There are other options that are not as risky. Make sure you consider all the other options that you have before you borrow this high-interest short-term loan.
Borrow only what you need
If find yourself without any other option, make sure that you will borrow only what you need. It may be tempting to borrow more so you can spend it on entertainment or shopping. But considering how you have come to a situation wherein you need to borrow this type of loan, you might want to rethink the need to borrow more. Do not go beyond what is needed so you can minimize that interest that you need to pay for the debt.
Have a repayment plan
Finally, it is important for you to be prepared to pay it off. When you use no-credit-check loans, the lender will arrange for it to be automatically withdrawn from your bank account. Ensure that you have the funds for the payments. If the money from your next paycheck is not enough to cover the payment or is meant for other bills (like credit cards and mortgage), you might end up with more financial issues in your hands. Be prepared for the repayment plan so you will not make things worse.