Online no credit check loans may seem like an easy way to borrow money. But they come with a set of pros and cons. It is worth considering both, even if you are currently going through a rough financial patch. That way, you can make a better-informed decision and avoid any unpleasant surprises.
What Is an Online No Credit Check Loan?
These loans are precisely what their name suggests they are. With them, lenders assess your creditworthiness without running a credit inquiry on you. That is in stark contrast with traditional practices in this sphere.
Typically, creditors look at the FICO score of loan applicants before they lend any money. That helps them determine if the credit candidates will be able to pay back their debt. This score has been used since the early 1980s, and it is based on several factors. They include:
- The amount of money owed on accounts
- Credit payment history
- Length of credit history
- New credit accounts
- Credit mix
Another way lenders gauge borrowers’ creditworthiness is by making hard inquiries. That means that they take a detailed look at your previous loan and credit card applications. This process could affect your credit score by lowering it. On the bright side, hard pulls cannot be performed without your permission.
In contrast, online no credit check loans do not require hard inquiries or a high FICO score. Instead, they estimate how likely you are to pay back your debt by looking at your:
- Financial history
- Past and current employment status
- Bank account balance
- Education and qualifications
Still, some creditors that offer such loans may also run a soft check on you. That allows them to see your credit score. Luckily, this is a rare practice, and it will not affect your score.
Why Do People Look for Such Loans?
There are a few main types of borrowers that show interest in loans without a credit check. The first group includes people who need to cover some unexpected expenses. That can be some small home repair, appliance replacement, or unplanned travel costs.
The second type consists of people who have bad or even no credit history. To be approved for a traditional loan, they must jump through a lot of hoops. For that reason, they opt for this shortcut alternative.
Are you thinking of applying for a no credit check loan online too? If yes, consider all your options carefully. Also, familiarize yourself with the pros and cons of online no credit check loans in advance. That may help you avoid spiraling into a hole of debt.
Pros of Online No Credit Check Loans
Easy and Swift Approval
Applying for this type of loan online is very easy. In most cases, you just need to fill in an online form. Then, a lender will contact you with an offer. That can happen within one business day. Other loan providers such as Cash Advance and CashUSA.com send their decision in a matter of minutes.
Sometimes lenders may ask you to provide additional information. But such requests come after you approve the offer of the lender.
The Funds Are Sent Fast
One of the purposes of no credit check loans is to help borrowers quickly meet surprise costs. So, the funds are transferred not long after the approval of the credit application.
The money will arrive straight into your bank account within a couple of days or earlier than that. For example, MoneyMutual sends the funds within 24 hours after the approval.
No Use Restrictions (Almost Always)
Another advantage of these loans is that you can use them for any purpose with no restrictions. The lender will not ask you how you plan to spend the money. That gives more flexibility and freedom of action to borrowers.
Borrower’s Credit Score Can Be Low
According to a research by WalletHub, seven out of ten Americans have a FICO score higher than 670. That makes it easier for them to get loans that require high pulls. The remaining 30% of the adult US population has either a fair or a very poor score. Their chances of a credit approval are slim to none.
No credit check loans are accessible even for people who are part of that 30%. Not all online credit providers make offers to candidates with a lower credit score. But finding one that does is not hard.
Borrower’s Credit Score Is Not Affected
This type of loan does not require hard inquiries. Lenders only do quick financial, employment, and education background checks on applicants. That is why your credit score will not be reduced.
This advantage appeals most to people who have limited, bad, or no credit history. Even if they send applications to several loan providers, their score won’t decrease.
Cons of Online No Credit Check Loans
Borrower’s Credit Score Is Not Affected
The fact that these loans do not influence your credit score can be a double-edged sword. It’s true that they will not reduce it. The problem is that they may also fail to improve it.
Many lenders do not provide payment details to credit bureaus. Consequently, your FICO score may remain the same, even if you pay back your loan on time.
That won’t be the case if you fail to fulfill your debt obligations. The provider may transfer your loan to a collection agency. Then, you will be reported to credit bureaus, and they will reduce your credit score. To better control your future credit score, you can file a dispute for credit report.
You Will Pay Extra
Loans without credit checks target high-risk borrowers with limited alternative options. So, they come with higher fees and rates compared to traditional bank loans, for instance.
The average loan APR (annual percentage rate) ranges between 5% to 35%. That percentage often goes over 100% with no credit check loans. In some extreme cases, the interest rate can reach more than 2,000%.
Loans with such shocking APRs may help you cover unexpected expenses and make ends meet. But they may also dig you further into debt.
Just a Short-Term Solution
Online no credit check loans are short-term ones. Borrowers don’t pay them back in monthly installments. Instead, they have anywhere between 7–30 days to pay back their debt. That offers little flexibility, and the risk of finding yourself in a vicious debt cycle is very high.
The Amount of the Loan Is Limited
Do not expect lenders to let you borrow hefty sums. The average loan amount is between $100 and $1,000.
You can find online lending platforms that will help you get up to $2,500. But that will require some luck and a lot of research. Also, don’t forget that the bigger the loan, the higher the rates tend to be.
High Risk of Bad Loan Terms
Every lender has different loan terms. Some are more borrower-friendly, while others are rather unfair. Keep your eyes open for some of the following traps:
- High collection charges
- Excessive interest rates
- Floating interest rates
- High origination fees
- Excessive prepayment charges
Alternatives to No Credit Check Loans
Do these disadvantages make you reconsider applying for this type of loan? What if you have a bad credit score and you need quick and easy money? Well, you have more than one option.
There are many credit units and banks that offer loans for bad credit. They come with higher APRs, but their terms are more transparent. Not everyone gets approved for them. But it’s worth a try.
Another solution you can rely on is payday alternative loans. They are issued by credit unions. With them, you can borrow small sums, but you will get more time to pay them back.
If you own a property or a vehicle, you can apply for a secured loan. The creditors will use an asset of your choice as loan collateral. The advantage of this option is that you can borrow more significant loan amounts.
Finally, you can always ask a family member or a friend for financial help. That may save you from the high interest rates. But be careful! It may also cost you a meaningful relationship if you fail to keep your end of the deal.
Are These Loans a Good Idea?
Online no credit check loans have both pros and cons, but their disadvantages come at a high cost. One wrong move, and you risk digging yourself in a hole of debt.
Think twice before you apply for them, even if you have a bad credit history. It’s unlikely that these loans will improve your FICO score. What’s more, they may end up reducing it.
It’s best if you research deals from different online loan providers. Not all of them are looking to scam or rob you. Still, no credit check loans are not all made equal. So, invest some time and effort, and you may find what you need.
Ultimately, borrowers with bad credit history have different loan options. No credit check loans are only one of them.