Select Page

It sounds too good to be true that you can get a personal loan without having your credit checked. This sounds like great news to people who need money but don’t have a good credit score or for those who don’t want another inquiry into their credit history. Unfortunately, while some lenders do offer this service, it’s not quite as great as it sounds like at first.

There are a variety of these types of loans out there. They may be called a no-credit-check loan or installment loan. It’s common for people to take out payday loans or a loan from a car title lender for this purpose. However, this isn’t a wise choice, no matter how bad you need the money right now.

You should always be wary of any type of credit that doesn’t involve a credit check first. There have even been laws in place to stop this type of lending in some areas. Lenders have gotten crafty, though, now dubbing their no-credit-check loan as an installment loan or a payday installment loan. These loans may come with even more perks, like longer time to pay them back. It’s also common for a lender to move to another state or being operating under a different name when lawmakers start to close in on them. Ultimately, the better loan terms sound, the worse they’ll be for your financial future.

Note that there’s usually a difference between a no-credit-check loan and a payday loan, although both should be avoided. Payday loans typically need to be paid back in one lump the next time you get your paycheck. On the other hand, a no-credit-check loan can be paid back over several months. Both loans range in amounts, sometimes as low as $100 to as high as several thousand. Also, both loans can be repaid in fixed payments and you’ll receive your money within 24 hours, if not sooner.

What’s the problem, then? Often, these no-credit-check loans have incredibly high interest rates, some even exceeding 200%. Consider this: if you want to take out a no-credit-check loan for $2,600 and that loan comes with an 18-month repayment schedule and a 187% interest rate, you’ll end up paying close to $8,000 in the end. The reason the interest is so high is because the lenders don’t have any idea if the borrower is able to pay back the loan or how long it will take them. The only thing the borrower needs in order to qualify for a loan like this is some sort of regular income and a bank account. The reason you need a bank account isn’t just to collect your loan money, either. The lender will often require electronic payments to be made from your bank account. This can put you in an even worse financial situation than where you started.

The main problem with no-credit-check loans is that the borrowers who need them often don’t have a high income to start with, making it incredibly difficult to pay back the loan along with the high interest rate. Without being able to get other types of credit, you won’t be able to consolidate the debt when it starts to get out of hand. That’s exactly what the lenders of these types of loans count on: people who are so desperate for money right now that they’re willing to pay back an exorbitant amount over time. Since the interest rate is so high, the lender will still make a profit even if you end up defaulting on the loan.

There’s even more to be worried about, though. The interest rate isn’t the only extra money you’ll need to pay back. Often, these loans come with all sorts of fees, like credit insurance, which can raise the total percentage you’ll be paying back.

It’s common for people who take out a no-credit-check loan to need to get another loan in order to consolidate or to take more than the approved length of time to pay the original loan back. Both options can put you in a cycle of debt that becomes increasingly difficult to escape.