Should You Take Out a No-Credit-Check Loan?

When you need money quickly and have bad credit, advertisements for no-credit-check loans might seem enticing. While no-credit-check loans may appear to be the perfect solution to your financial issues, there are some critical considerations to take into account.

These loans, also known as no-credit-check installment loans, have interest rates that can reach 400 percent in some circumstances — considerably higher than those found at credit unions or internet lenders. We’ve put together some considerations for no-credit-check loans along with some alternatives you may explore.

Important Considerations for No-Credit-Check Loans

Insufficient information on your credit, low income, and other financial liabilities can make a lender’s judgment of your ability to repay a loan less than favorable. In some cases, lenders that offer no-credit-check loans may request access to your bank account. Be cautious of these lenders as they may automatically withdraw the amount due for repayment on each due date.

Although no-credit-check loans are less prevalent than regular loans, you can still apply for one through a variety of organizations, including:

• Payday Lenders — Many payday lenders offer no-credit-check personal loans. Payday loans earn their name because many people use them to help them with financial obligations from paycheck to paycheck. These loans tend to have high interest rates and allow you to roll your existing debt into a new one. This can exacerbate debt if you are unable to break the cycle of high-interest borrowing. 
• Auto Title Lenders — Lenders that offer you an expensive loan in exchange for your car title might be located online or in your neighborhood.
• Online Lenders — Some internet lenders do not specialize in payday loans or vehicle title loans, but they provide no-credit-check loans.
• Pawn Shops — Pawn Shops sell things and can provide short-term pawn loans. They’ll generally offer you a ticket along with your cash, which you’ll need to retrieve your pawned item when you repay the loan.

Why Are No-Credit-Check Personal Loans Risky?

Although no-credit-check personal loans may be a promising option to navigate difficult financial circumstances, they might be restrictive or even hazardous in some situations. So before you apply for one, here are four things you should know.

They’re Expensive.

Unfortunately, if you don’t have excellent credit, you’ll likely end up paying more for any loan you receive. When comparing no-credit-check loans to normal loans for bad credit, both options tend to offer only very high interest rates. 

They Can Trap You in Debt.

Payday loan providers are aware that these loans are costly and that there is a good possibility you will be unable to repay them. When you are unable to pay back your loan, they allow you to roll it into a new loan. This cycle can repeat indefinitely, costing the borrower a lot of money along the way. 

They Don’t Build Credit.

Payday loans and other no-credit-check loans do not help you develop credit, because they do not verify your credit and record your payments (even if they are on time).

Alternatives to No-Credit-Check Loans

Depending on your specific financial circumstances, you may want to investigate alternative options. If you have reservations about taking out a no-credit-check loan, consider:  

• Saving and Credit Building — If you aren’t experiencing an emergency where you need money immediately, it’s preferable to save your money and establish your credit first. Not all credit-building methods are time-consuming, and by saving, you can earn interest rather than pay it to someone else.
• Charity and Resources — A no-credit-check loan is not the only option for people in need. There are many resources available around the country that can assist you, and you may find them by using 211.org.
• Credit Counselors — Another non-profit option is the National Foundation for Credit Counseling, which provides live counseling to help you discover a solution to your financial and credit difficulties. Again, this is a low-cost, if not entirely free, service.

No matter your circumstances, there are resources and options available to help you. Do your homework and evaluate all the options according to your need.