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The dangers of no credit check installment loans
No credit check installment loans could cause more problems than they solve.
If you have bad credit, a lender who doesn’t do credit checks may be appealing, but this type of loan usually has high interest and hefty fees. Be prepared to spend much more than the initial loan amount on repayments, otherwise, it’s best not to borrow the money in the first place.
What an installment loan is and how it works
An installment loan is when you borrow money and pay it off over the course of months or years in pre-scheduled payments. Technically, this includes mortgages and person loans, but when most people talk about an installment loan, they’re focused on a type of short-term loan with lenders who advertise no credit checks and quick approval.
This is a deceptive tactic. Although lenders may not do a formal credit check with one of the three major credit bureaus, they’ll likely confirm your credit history with Teletrack, a company that provides credit information specifically to short-term lenders.
In addition, you’ll have to meet other criteria besides credit in order to be approved. Lenders base their decisions on your income and other personal factors before lending. Because the requirements are less strict than with traditional bank loans, you’ll face more fees and higher interest rates that could add up over the course of the loan.
Otherwise, installment loans look like their longer-term counterparts. The payments are scheduled based off when you are paid, and you have multiple months to pay back what you owe.
What you should look out for
Considering an installment loan? Check out these pointers before taking on risky debt.
- Exorbitant interest rates and fees. The interest that accumulates on installment loans can be huge, and unlike payday loans, some states don’t put a cap on the amount you can be charged.
- Easy approval can be bad. Although having a lenient approval process seems appealing when you don’t have he best credit, it means these lenders don’t care if you can afford to pay back the money you borrow.
- Repeat short-term lending. When you’re faced with a payment you can’t meet, lenders might offer you a second loan to help pay back the first, usually with even higher interest and more fees tacked on. This means paying back two (or more!) loans at once, leaving you in the same situation as you were before.
- Aggressive debt collection. If you default on your loan, you could have to deal with aggressive debt collectors who can automatically withdraw money from your bank account or harass you at work.
Payday loans versus no credit check installment loans
A payday loan is different than an installment loan because you’ll have to pay back your principle and interest all at once, usually between 15 to 30 days. Because of the predatory nature of these loans, they’ve been subject to high regulation and have been banned in some states.
In contrast, you can pay back an installment loan over the course of months. Because you have more time to repay, installment loans haven’t been under the microscope in the same way payday loans have. However, consumer protection agencies and watchdog organizations have recognized the equal dangers that long-term no credit check lending causes since it ultimately preys on people who will likely never be able to afford to pay off their original debt.
Unlike payday loans, installment loans report activity to the credit bureaus. If you pay your bills on time, it could give you a chance to rebuild your credit, but if you don’t, your credit score will be negatively affected.
Finally, because installment loans have largely flown under the radar, many payday lenders are repackaging their products as installment loans and using the same predatory tactics. They target the same people with damaged credit who don’t qualify for better rates.
This type of loan is often marketed as a safe alternative to payday loans because it doesn’t have a quick turnaround, but they may be even more costly since installment loans have more time to charge you more interest.
Ultimately, they are still risky decisions.
No credit installment loans are not a “one-time” fix
Lenders often advertise their services as a quick fix or a way to get yourself out of an emergency. This may be true for some, but many people find themselves unable to balance loan payments with their already tight budget.
Predatory lenders prey upon this. They know you’re in need so they offer terms that look good from the outside, but if you can’t pay them back, you’ll be in a spiral of debt that only gets worse.
Installment loans are not a way to fix long-term financial issues. If you need to get money quickly, there are more alternatives to consider. At the end of the day, taking on more debt to pay back debt is always a risky decision. Exhaust all your options before committing to an installment loan.
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