No-credit-check loans: Why to avoid them and what to do instead
Borrowing money isn’t out of the question when you have poor credit – but no-credit-check loans are expensive and can trap you in a cycle of debt. ( iStock )
If you need money for an unexpected expense but your credit isn’t good enough to qualify for a traditional loan, you might think a no-credit-check loan is a good idea. While borrowing money isn’t out of the question when you have a bad credit history, no-credit-check products come with exorbitant fees and should only be considered as a last resort.
Let’s examine how no-credit-check loans work, why you should avoid them, and some borrowing alternatives when you have poor or little credit history.
What are no-credit-check loans?
With a no-credit-check loan, the lender doesn’t check your credit report and score before deciding to give you a loan. To make up for the risk that comes with lending money to borrowers with potentially poor credit histories, no-credit-check loan lenders charge high interest rates and fees.
You may come across a few different types of no-credit-check loans, such as payday loan, title loans, and personal installment loans.
Why do lenders check your credit?
Your credit report and score help lenders understand how you’ve managed credit in the past, and estimate how likely you are to repay a new loan. Because of this, it’s common to undergo a credit check when you complete a loan application. Lenders aren’t looking for a perfect credit report, but they do look for histories of missed payments, debt in collections, or a bunch of recent credit inquiries. Having a lower credit score can affect the types of rates and terms you’re offered and can even disqualify you from getting a loan. Continue reading No-credit-check loans: Why to avoid them and what to do instead