Quick loans for bad credit can look mighty attractive. However, products like payday loans and auto title loans have major drawbacks, including short repayment periods and sky-high interest rates.
In fact, short-term loans can be so expensive that borrowers often end up paying exponentially more than they would if they’d financed the purchase some other way. And loan holders often end up re-borrowing, starting a vicious cycle that can quickly spin out of control.
So when you need money now, what should you watch out for—and what are some savvier alternatives to predatory loans? In this article, we’ll lay it all out.
What Are No Credit Check Loans?
No credit check loans, as their name implies, are loans that offer quick cash to borrowers without requiring a credit check. However, not requiring a credit check means these loans are riskier for the lender, which is part of how they can justify high-interest rates and fee schedules.
And when we say high, we mean high. It’s not hard to find payday loans with effective interest rates of about 400%, and sometimes up to 1000% or more.
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No Credit Check Loans: Borrower Beware
Here’s how those numbers can work out when it comes to real money.
Say you take out a loan for $1,000, to be repaid over the course of a single year. (In many cases, payday loans, and other no credit check personal loans will require much faster repayment than this example—often just a few weeks).
If you receive the loan at an APR of 10%, you’d end up making monthly payments of $87.92 and paying a total of $1,055.04—just $55.04 in interest.
If you receive the loan at an APR of 30%, you’d end up making monthly payments of $97.49 and paying a total of $1,169.88, paying $169.88 in interest.
At an APR of 400%, however, you’d end up paying $344.24 per month for a total of $4,130.88—a whopping $3,130.88 in interest alone.
It’s clear to see how these loans can lead to financial trouble, even on a much smaller scale. Even under the best of circumstances, it can be difficult to get ahead of short repayment terms and steep interest rates.
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Who Offers No Credit Check Loans?
Two of the most common types of these no-credit check loans are payday loans and auto title loans.
Payday loans, as you might have guessed, are designed to be repaid on the borrower’s next payday—generally within two to four weeks. Because payday loans do so often carry predatory interest rates and terms, some states have limited the size and interest rate of payday loans, but even small loans with lower interest rates can lead to financial trouble.
Auto title loans, or simply “title loans,” are another common type of short-term personal loan that doesn’t require a credit check. In the case of a title loan, the borrower gives the lender the title of their car as collateral for a cash loan of up to about 50% of the value of the car.
The borrower is still allowed to drive the car, but the loan principal plus interest is generally due within 30 days—again at astronomical rates. If the borrower is unable to pay the loan, they risk having their car repossessed.
Other lenders offer similar types of short-term, high-interest rate personal loans, sometimes advertising online loans with no credit check required or guaranteed loan approval.
Even if they aren’t called payday loans or title loans, the borrower would be wise to pay attention to the loan’s terms and conditions, particularly interest rates, fees, and expected repayment schedules.
Generally speaking, too-good-to-be-true financial products are often just that. Staying informed about the full implication of the loan’s terms and even doing the math to work out how much would be repaid over time can help borrowers avoid a potentially disastrous financial situation.
Alternatives to No Credit Check Loans
As financially harmful as no check credit loans can be, there still might be instances in which borrowers need quick access to money. Fortunately, there are some alternatives worth consideration.
For starters, borrowers might turn their attention to why they need the money in the first place. Short-term loans are often taken out to repay existing debt, an approach that might result in the borrower going even further into debt to try to scramble out of the hole.
In this scenario, attempting to negotiate the existing debt with current lenders might be a better tactic. Sometimes, credit card issuers and other lenders might offer repayment options to ease the immediate financial burden. It’s a tactic that’s worth asking a creditor about.
Another option: borrowing from friends and family, which can come with its own set of pitfalls. However, family loans are unlikely to create the same kind of debt spiral short-term cash loans might.
In order to keep things friendly, setting out a formalized loan agreement with interest rates and terms, similar to what you’d expect to sign for a traditional loan from a financial institution, is a good way to keep the transaction as objective as possible.
Credit unions are another source of small-dollar, payday loan alternatives—and importantly, credit unions are subject to a federal interest rate cap and other limits that keep these loans from becoming exorbitantly expensive.
And although they’re generally not an ideal solution, even credit cards usually carry lower interest rates than short-term cash loans. Some borrowers might also be able to utilize a promotional 0% interest rate period in order to aggressively pay off debt without paying interest.
While no credit check loans can certainly be attractive, their high interest rates and associated fees can make them costly over time. Borrowers may not be able to repay the loans plus interest in the short repayment term required, which could lead to a debt treadmill scenario and, possibly, negative credit history consequences.
An alternative such as an unsecured personal loan usually does require a credit check and specific approval requirements. However, some lenders may consider extending loans to applicants with imperfect credit histories if there is a co-applicant on the loan agreement.
SoFi offers a range of unsecured personal loans with competitive, fixed interest rates and no fees. Checking your rate will not affect your credit score1.
SoFi members also get access to live customer support seven days a week, and qualified personal loan borrowers can take advantage of SoFi’s Unemployment Protection Program, if needed.
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1Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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