When you’re strapped for cash and short on time, it can be tempting to seek out the quickest and easiest route to funding. No-credit-check loans fit this requirement as they provide a lump sum with no need to pull your credit report. But these loans are also costly, with interest rates up to 400%, making them some of the priciest loan options out there.
Consumers should use no-credit-check loans as a last resort and only if they are 100% certain they can make the required payments on time and get out of debt quickly, says Sean P. Salter, assistant dean for assessment and associate professor of finance in Middle Tennessee State University’s Jones College of Business.
If you’re confident in your ability to repay a loan, you might consider some of the following no-credit-check loan options, but you should also be sure to evaluate alternatives.
[Read: Best Personal Loans.]
What Types of Loans Don’t Require a Credit Check?
The following are examples of no-credit-check loans. Note that not every state allows each loan — a testament to how risky these lending options can be.
The concept of a payday loan is fairly simple: These are short-term loans that generally need to be repaid on your next payday.
Payday loans are usually unsecured, meaning you don’t have to put up collateral. Instead, borrowers typically give lenders a post-dated check for the loan amount plus fees, or give the lender permission to electronically debit their accounts. The lender can cash the check or take the money out of your account if you miss the payment.
States can cap how much you can borrow through a payday loan, and $500 is a common loan limit, according to the Consumer Financial Protection Bureau.
Many states also limit payday loan fees. That said, fees can convert to a huge annual percentage rate: A two-week payday loan with a fee of $15 per $100 borrowed has an APR of almost 400%, according to the CFPB.
If that sounds scary, it should. Payday loans can be so dangerous that some states, such as New York, have made them illegal.
According to the New York State Department of Financial Services, “payday loans are designed to trap borrowers in debt. Due to the short term, most borrowers cannot afford to both repay the loan and pay their other important expenses.”
If you can’t repay the loan, you may be able to pay a fee to extend the loan term. Some states outlaw this practice or require lenders to make available no-cost extended payment plans.
Car Title Loans
Title loans are secured loans that use your vehicle as collateral.
“The specifics of these loans vary from lender to lender, and a consumer might have to own their car ‘free and clear’ to qualify for this type of loan,” Salter says, meaning you have paid off your car loan and have no liens against your vehicle.
With a title loan, you give the lender the title to your vehicle. You won’t get the title back until you’ve repaid the loan.
“If the consumer cannot repay the loan under the contract terms, then they will lose their automobile,” Salter says.
You’ll also need to show the lender the vehicle beforehand, along with photo identification and proof of car insurance. Some lenders may ask for a set of keys.
These loans are also short-term, usually lasting no more than 30 days, and you can often borrow 25% to 50% of the vehicle’s value, according to the Federal Trade Commission.
Title loans carry hefty fees and APRs. The average monthly finance fee is 25%, which equates to around a 300% APR, according to the FTC. Lenders often add other charges on top of this, such as processing and loan origination fees.
Lenders may also allow for loan rollovers but, again, this increases the cost of your loan. Some states ban title loans and others restrict their interest rates.
Pawnshop loans let you use items of value, such as jewelry or electronics, as collateral for a cash loan. The pawnshop will typically offer 25% to 60% of the item’s resale value as a loan. You’ll need to repay this amount plus interest and fees.
States can limit what pawnbrokers charge for loans. For example, Pennsylvania law states that pawnbrokers cannot charge more than 6% interest per year plus fees of up to 2.5% per month on any unpaid principal, and a fee of up to $1 to cover the costs of government reporting requirements.
The pawnshop will generally hold your item for at least 30 days. If by this point you haven’t repaid the loan, you may be able to extend your loan for a charge. Otherwise, the pawnshop can sell your item for whatever price it chooses.
[Read: Best Bad Credit Loans.]
How Can You Evaluate No-Credit-Check Loans?
“When considering a no-credit-check loan, borrowers should look for lenders with transparent terms and conditions, reasonable interest rates and fees and a clear repayment schedule,” says Cameron Burskey, managing director of retirement security at Cornerstone Financial Services. “It is also important to consider whether the loan amount is necessary and affordable based on the borrower’s income and expenses.”
As with any loan, you want to minimize your overall costs. This includes the interest rate and any additional fees. It’s a good idea to compare offers at different lenders to find the best deal.
Look for a lender with a reputation for fair dealing, Salter says. You can determine this by talking with friends, family or other contacts who have dealt with the lender before. You can also look up the lender’s rating with the Better Business Bureau and Trustpilot, and check out complaints in the CFPB’s consumer complaint database.
“It is important to be cautious of lenders who advertise ‘guaranteed approval’ or charge high interest rates and fees,” Burskey says. “Borrowers should also be aware of the potential for debt traps” that can result if you’re unable to repay the loan on time and incur additional fees and interest charges.
It’s a good idea to check your state laws to confirm the maximum rate you may be charged, says Steve Azoury, a chartered financial consultant and owner of Azoury Financial. Your state’s banking regulator should have useful information.
[Read: Best Student Loans for Bad Credit]
Alternatives to No-Credit-Check Loans
There are other options for people with no or poor credit to get a loan. Some alternatives to no-credit-check loans include the following options.
While personal loans do require credit checks, there are personal loans for bad credit that may have more lenient requirements. Bad credit personal loans can be secured or unsecured, but for the best rates you may want to opt for a secured loan if you have poor credit.
Poor credit means you’ll still probably get a higher APR than someone with a stronger credit profile — typically up to 36% — but the rate will be considerably less than the 300% to 400% on payday and title loans.
Payday Alternative Loans
“Some credit unions offer payday alternative loans that work like payday loans except that the loans carry lower interest rates,” Salter says.
Payday alternative loans, or PALs, will still have higher APRs than other credit union loans, but they come with more protections than payday loans. For example, federal credit unions may not force a borrower to pay additional fees or take on more credit if they allow the borrower to extend the term on a PAL I loan, which come in amounts between $200 and $1,000.
“Not every credit union offers these, and a consumer would have to be a member of the credit union to qualify,” Salter says.
Credit Card Cash Advances
“Credit cards offer cardholders an opportunity to borrow through a cash advance, and even though the interest rate will be higher than the standard purchase rate, the rate could still be much lower than no-credit-check rates,” Salter says.
Keep in mind that taking out a credit card cash advance is still an expensive way to borrow money. Check your credit card terms and conditions for fees and the cash advance APR, which may be different from your purchase APR.
With a 401(k) loan, you can access money in your 401(k) before age 59 1/2 without paying the 10% early withdrawal penalty. You typically must repay the loan within five years.
“Remember, however, that the borrowed money isn’t earning interest while it’s out of the account, and the consumer has to pay the interest back along with the money that was taken out of the 401(k),” Salter says. “This will probably work out better than a no-credit-check loan, as the interest paid will be lower and terms will probably be more flexible.”
Establish an Emergency Fund
The best alternative to a no-credit-check loan, according to Salter, is to establish an emergency fund
ahead of time so you can effectively borrow from yourself in times of need.
“This alternative doesn’t help an individual who has an immediate need, but it should be priority number one for anyone who can put a few extra dollars into savings right now,” he says.
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No-Credit-Check Loan Options originally appeared on usnews.com