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Beware of Loans without Credit Checks

The allure of a credit check is obvious, and the temptation to get this type of loan can be great for someone with poor credit and a very strained financial situation that is desperate for funds. These loans are for people who are unable to obtain short-term, non-exclusive loans from traditional lenders due to limited financial resources and poor credit. However, these loans carry significant financial risks. , and those who use such financial services often find themselves in worse financial shape after taking out a loan. Therefore, consumers are advised to consider alternative solutions for temporary cash flow crunch.

How a loan without a credit check works

The most common form of financing without a credit check is a so-called payday loan or cash advance. The structure of these loans is very simple. Lenders that offer payday loans typically offer loans to individual borrowers up to 100% of their next paycheck net take-home pay. Loans will be repaid on the day the borrower receives their next paycheck, and interest charges due are calculated over the same time period.

 For example, if a borrower applies for a payday loan on the 5th of each month and their next paycheck is due on the 15th, the loan term is 10 days and 10 days of interest should be paid. Together with the principal borrowed, on the 15th. Typically, the borrower repays the loan by subsequently issuing a check for the full principal plus the interest required repaying the lender. Unless otherwise arranged, the lender will only deposit the borrower’s post-dated cheque on the payment due date.

Possible problems

The main danger associated with payday loans comes from the exorbitant interest rates charged. While past abuses have resulted in payday lenders being heavily regulated, the ground truth remains that interest charges typically range from 25% to 30% of the loan amount. In other words, a $400 one-week loan might require the borrower to pay the lender $520.

 The annual interest rate (APR) can be higher than 1,000%, but because these loans have very short terms, interest charges are usually analyzed against the principal amount of the loan borrowed. Regulations vary from state to state, but lenders generally charge the highest rate allowed. While a $400 loan can help a borrower manage short-term need to pay bills or deal with other expenses, the interest he or she has to pay on the loan often creates another immediate cash flow problem a week later.

If the borrower cannot repay the loan and interest when it comes due, most payday lenders are willing to renew the loan for another checking period in exchange for the borrower paying only the interest due. Of course, this causes borrowers to pay more interest charges on the loan. Scams abound, too, especially as many lenders operate only online or over the phone, with no brick-and-mortar store offices. Common scams include asking borrowers to pay an initial fee, telling them to guarantee their loan will be approved. It is illegal to charge such fees in advance. Borrowers should be wary of lenders who claim to not require a credit check but still ask for personal financial information, such as the borrower’s Social Security number or bank information. This could be an attempt to steal identity or break into a debtor’s checking or credit card account.

Best Option for Loans without Credit Checks

If possible, avoid high-interest loans, such as payday loans. In the long run, they tend to cause more cash flow problems than they can solve. Possible solutions to a cash flow crunch include asking employers to pay upfront, doing thrift sales or taking out loans from pawn shops to buy items such as jewelry. Pawnshops also charge high interest rates, but not as high as payday lenders, and offer longer loan terms. Credit card cash advance is another possible option. Again, credit card rates, especially cash advances, tend to rise, but they’re still insignificant compared to interest on payday loans.

Most Expensive Option: Payday Loans

If you can’t provide collateral or can’t find a co-signer, you may be able to apply for a payday loan. Payday loans offer quick cash with few eligibility requirements. However, experts recommend taking out a payday loan only if you have no other choice because payday loans are very expensive. 

Highest annual interest rate

The annual interest rate (APR) on payday loans, including interest rate and loan fees, is often as high as 400%. For comparison, the average interest rate on a personal loan generally ranges from 6% to 36%. Payday loans cost significantly more than regular personal loans due to their extremely high interest rates and fees.

Short payment

Terms Payday loans should be paid promptly, usually within two to four weeks, or around your next payment date. More than 80% of people who apply for repayment loans are unable to pay within the repayment period. This often forces them to repay their loans more often, leaving the borrowers in debt. Because of these unfavorable loan terms, you can easily end up spending more money on the loan interest than the original loan amount. 

For all these reasons, payday loans are often used when there are no other options. Offers inclusive personal loans they don’t need a credit history. Getting a personal loan without a credit history may require extra effort. But it can be obtained through the right lender. We provide personal loans to people with limited or No Credit Check Loans Guaranteed Approval Slick Cash Loan history. Find out if you are eligible for a personal loan from Oportun in just a few minutes. If so, you can receive your money in as little as two hours. Best of all, our loans offer affordable, fixed repayments that can be paid in months, not weeks.

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