No Credit Check Loans: Are They Worth Checking Out?
Ferguson & Ferguson
Attorneys at Law
October 22nd, 2019
Financial emergencies like medical bills, car repairs, or emergency home fixups are unexpected expenses, and if you haven’t prepared or set aside enough budget to cover them, you may have to look for alternative sources of money. Taking out a loan is not an easy decision, but it’s one of the easiest ways to get the amount that you need, except if you have bad credit. Having your credit score checked by, say a lender, may actually hurt your credit score–something that may be confusing and frustrating to a lot of people. This is why most may find a no credit check loan a very appealing option.
How important is it to know your credit score?
First of all, you must take due diligence in checking your credit score yourself. Knowing what your credit score gives you an idea where in the spectrum of credit users you fall on, so you know how you measure up. When you know your credit score, you’ll somehow know your chances when it comes to interest rates on mortgages, car loans, and other loans. Checking your credit score can also help you immediately find out whether there is an error in the calculation or whether you have been a victim of identity theft. Your creditworthiness is checked by new employers, landlords, and others, so it may be beneficial for you to be well-informed of your own rating.
Why do credit checks by lenders hurt your credit score?
This may not seem fair, but when lenders check your credit score, your number is actually lowered. Most traditional lenders and financial institutions conduct a hard check on your credit score and credit history to determine how risky it is to lend you money. Now, how does it hurt your credit score? Hard credit checks in a short span of time may indicate that you are desperate for money and this makes you appear risky. Lowering your credit score is needed to reflect that risk. Those who need fast cash and are concerned about lowering their credit score may find no credit check loans good options. However, you need to be careful.
What are no credit check loans?
A no credit check loan is a type of loan wherein a lender does not conduct a “hard” background check on their borrower. Payday loans and title loans are examples of no credit check loans. Lenders of these types of loans do not necessarily need to check your creditworthiness because they are sure that they will get their money back one way or another. How? Collateral. Payday loans have your paycheck as collateral, while title loans have your car title. In the event that you are not able to repay what you owe, they have the right to cash your paycheck or take possession of your car.
Before jumping into this option, you have to understand that this kind of loans come with annual percentage rates that can go north of 400%, which is far above the rates you get from other types of loans. These types of loans can potentially trap you in a cycle of debt for years.
Are they worth checking out, then?
You may want to consider a no credit check loan as a last resort. Know all the information there is to know about every option, as well as the lenders that you are eyeing to work with. Borrowing money is a major decision. Do not make this decision hastily or without a clear understanding of how it will affect your credit score and future financial decisions.