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Why No Credit-Check Installment Loans Are A Bad Idea

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Nathan J. Lee
Why No Credit-Check Installment Loans Are A Bad Idea

So, what exactly are no credit check installment loans? If you have a weaker credit history and need some urgent cash, you do not have many options available. This is where no credit-check installment lenders can come into the picture.

These loans make it possible for you to borrow without a hard credit inquiry, which you have to agree to when applying for more traditional loans. 

However, just like any other financial product, these no credit check options  have their own advantages and disadvantages which you must consider carefully.

How Credit Checks Work

When you apply for credit, a lender will normally run a hard credit inquiry to determine your creditworthiness. It also helps them decide your eligibility and interest rates.

Lenders follow this procedure to determine the risk of lending to you and your ability to repay. A poor history and bad credit score will affect your chances of qualifying for the loan.

You must avoid lenders that do not take this procedure seriously as they are likely to push you into a predatory debt cycle.

Main Characteristics

Should you consider small installment loans with no credit check? 

Lenders might lure you with a promise of the best no credit check loans where there is no hard credit check required. However, you should avoid these lenders that do not place  importance on proper due diligence.

They can be as predatory as title loans or payday loans, keeping you trapped in an endless debt cycle. The annual percentage rates (APR) are also very high and can even reach 400% in some cases.

The Danger - A Cycle Of Debt

What are the dangers of no credit installment loans? 

You may be able to borrow from $100 to several thousand dollars, with the repayment term spread across months or years. However, the astronomical interest rates will affect your finances over the long run. 

With no hard checks involved, it might be very easy to fall for these predatory choices. Lenders make them even more attractive by promising to release the funds the same day. 

Let us consider that you borrow $3,000, with an APR of 400% for two years. You will have to make fixed monthly payments of around $1,000 for two years ($24,000 total) just to clear the $3,000 debt.

Watch Out For Added Charges

Besides the higher charges that can put strain on your finances, here are some additional things that you must monitor. 

Lenders usually add additional financial products to a loan like credit insurance, which is there to provide coverage if repayment issues are encountered. It is useful for lenders if you fail to make payments due to unemployment, death, or disability.

You might also have to pay a one-time origination fee and penalties if you make late payments.

Be Careful Of Scams

Scam lenders often attempt to charge an upfront fee while not providing anything in return. While application fees are common, you must know exactly what you are paying before agreeing to pay anything.

A trustworthy lender will make you aware of the repayments, term, and fees in clear and transparent terms. Accordingly, always discuss these factors upfront with your lender.

If you pay any fees, they should be deducted from your loan proceeds once your lender approves the loan.

Best Alternatives

Even if you have a suboptimal credit score, you can consider these three alternatives for short-term cash.

  • Payday Alternative Loans - These loans are credit union-issued credit agreements designed to help borrowers avoid payday loans which are surefire debt traps.
  • Credit Unions - Credit unions offer loans starting from $500 and often help borrowers make the repayment affordable. They also offer credit builder options that can help improve your credit history.
  • Online Lenders - You can consider lenders like Avant and OneMain Financial, which lend to borrowers with credit scores below 600. If you are seeking debt consolidation, Avant can be a good option. However, you must remain watchful of higher interest rates.

Conclusion

No credit-check installment loans may look attractive to borrowers with a poor credit history. Still, these are a lot more expensive than traditional loans given the higher risk for lenders.

If not handled well, these credit agreements can put you in a debt trap that could last for years. The best way to avoid them is to go for an alternative option with better terms from a reputable organization.

You must also consider improving your credit history, which is vital to qualify for any traditional loan. Investigating installment loans for bad credit is a great place to start comparing financing options.