Bad credit makes people desperately look for a borrower that offers loans with no credit check. No credit check means the lender approves your loan without checking your credit history or score.
It sounds great at the moment when you are in desperate need of cash. It helps you move forward in life but like other financial decisions, you will need to cautiously consider no credit check loans.
How safe are no credit check loans?
You will get multiple options offered including a payday loan, a personal loan, a title loan, and more. The lenders you choose will define the safety of not getting trapped in the vicious debt cycle.
There are safe and legitimate lenders in the market. You need to avoid predatory lenders and how will you differentiate between safe and unsafe financial products.
Three main differentiators
Rate – You know it as the ‘interest rate’, which is a percentage of principal loan amount the lender charges from the borrower. You need to understand the Annual Percentage Rate [APR] and the interest rate while assessing a loan.
For example, if you borrow $125 at 350% APR means at the end of the year, you will need to pay $350 for the freedom of borrowing $125, at the moment.
Term – The longer-term means low monthly payments and vice versa. However, short-term biweekly or monthly payments are connected with predatory lenders.
Predatory lenders trap desperate borrowers with high-interest rates on payday or title loan types. Low-income borrowers are forced to default and sink into further debt.
Ability to repay – A reputable lender will check the borrower’s capability to repay the debt. It is a good sign. Lenders who don’t consider your repayment ability will possibly try to take advantage of your situation.
How to tell if the no credit check loan offered is safe?
Ask yourself the following questions –
- Is the loan offered secured or unsecured? A secured loan means there is a need for collateral [e.g. car]. Remember, if you fail on repayment the collateral will be lost.
- Has the lender considered your repayment ability? If the potential lender is not looking at your paychecks or employment, then they are possibly trying to trap you in a bad debt cycle.
- What are their terms and rates? Instead of payday loan choose personal installment loan for 36 months rather than 2 or 3 weeks.
- What are the potential lenders online reviews? Get to know what customers talk about them. Do they seem frustrated or satisfied with the lender?
Understand credit and how a credit score is crucial. Even do some research on the potential lender before obtaining a no credit check loan to be safe!