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No Credit Check Loans: Why to Consider Alternatives First
When you need cash and you’re stressed, almost any offer for fast cash sounds like a good idea. But many offers aren’t as good as they look. If you’ve been considering one of the no-credit-check loans out there, take a step back for a moment to consider. Some no credit check loans are roughly on par with payday loans and will trap you in a cycle of debt for the foreseeable future.
When you need money, it’s stressful. That can make it hard to make good decisions. Companies offering predatory loans take advantage of this mindset to try and lure in customers who are too frantic and frazzled to read the fine print. But if you slow down to read the terms of these various no-credit-check offers, you’ll often discover an APR close to or more than 400%. APRs that high are difficult to ever repay. Why lock yourself into a cycle of debt, when there are other fast options to consider first?
The High Cost of No-Credit-Check Loans
So, what’s so bad about a no-credit-check loan? In short, it’s the cost of borrowing the money that makes them a risky idea. With an interest rate of 400%, when you borrow $2,000, you’ll be stuck with a monthly payment of $667 for two years. Twenty-four monthly payments of $667 is more than $16,000. That’s a pretty penny to pay when you initially borrowed $2,000.
If you borrowed the same $2,000 from an online lender offering personal loans, the highest APR you’d be likely to pay is 36% if you have poor credit. With monthly payments of only $118 for two years, you’ll ultimately pay back just over $2,800. If you have good or fair credit, you’ll pay even less to borrow the money.
The ‘Safety’ of No-Credit-Check Loans
Predatory loans have a significant safety concern as well when it comes to your bank account. When you sign up for a no-credit-check loan, you are giving the lender access to your bank account. The company has no insight into your finances and, frankly, isn’t interested. They don’t care how much or when you get paid. They don’t care about your other bills.
When you sign up for an installment loan with a no credit check lender, you have signed on to huge payments that are likely automatically deducted from your bank account. You cease to have control over a large portion of your paycheck when the company withdraws funds for their large payments every month.
Additionally, you may find withdrawals for other things like credit insurance or other hidden fees you weren’t aware of when you signed on or that you simply missed in the fine print on the day you gave access to your accounts.
Alternative Loans to No Credit Check Loans
If you are stuck in a bad financial place and you have bad credit, you may feel like a no credit check loan is your only option. This is exactly what predatory lenders want you to think – desperate borrowers tend to overlook things like 400% APR. But you do have other options, even with bad credit.
From community lenders and faith-based organization to online banks and credit unions, there are many ways to borrow money that doesn’t involve predatory practices.
RELATED: 5 Reasons to Get a Personal Loan
Online lenders have flexibility where banks and credit unions don’t. They are based entirely online and have personal loan options for borrowers across many different credit ratings. Even if you have bad credit below 600, you may still be able to find a personal loan from an online lender with rates far less than you’d pay through a no credit check loan. Shop across a variety of lenders as some consider factors other than credit score as a basis for the loan. Match Financial makes this easier to do.
Credit unions are similar to banks, but they are really a community-based banking coop. That means they are essentially a non-profit financial institution that exists because of and works for the people in a community. Even if you have bad credit, check with your local credit union to see if they might help. Most credit unions offer small-dollar loans. These loans start at $500 and have terms that make them affordable. At most you’ll be paying 18% in interest through a credit union since there are caps these institutions must follow.
There are several online lending coops that are peer-based rather than community. Some people invest money and others borrow it and pay it back with interest, skipping the bank entirely. Peer lending communities may have terms that are workable for someone with no or bad credit. Most are based entirely online.
If you are a member of a faith-based organization, like a church, speak to the leadership in your organization. There may be programs available through the church or center to help those struggling with finances. You may be eligible for a loan through a special program or you may be gifted assistance in other ways through charitable contributions.
Payday alternative loans, or PALs, are issued through credit unions as an alternative for payday loans. Check to see if options like this exist in your area or with your credit union. For those with bad credit, installment loans with online lenders can be an option as well.
Most of the time, no-credit-check installment loans are a very expensive way to borrow money. There is no need to get trapped in a cycle of debt when other options are available. Even when you are stressed and feel trapped, take a few moments to research and consider your other options before making a financial decision you’ll regret.