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Are Signature Loans With No Credit Check Too Good to Be True?
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Signature loans that require no credit check and offering fast cash sound great in theory, but the risk is typically not worth it.
Signature loans are a type of unsecured debt, so there is no collateral involved. Banks and financial institutions will run credit checks and set strict requirements because of the lack of collateral. But some predatory lenders will offer signature loans with no credit check that prey on people in dire financial situations.
- Signature loans with no credit check: Payday loans in disguise
- Are payday loans worth the cost?
- Alternatives to signature loans with no credit check
- Why it’s worth waiting over taking out a signature loan with no credit check
Signature loans with no credit check: Payday loans in disguise
Signature loans with no credit check are basically payday loans, or short-term cash loans. With these loans:
- You don’t need collateral
- The lender won’t run a credit check
- You can receive approval with bad credit
A traditional signature loan is a personal loan with the following typical features and requirements:
- No collateral
- Terms ranging from 12 months to five years or longer
- Fixed interest rates
- Requirements: Good credit and a steady income to show you can repay your debt
Let’s take a closer look at payday loans versus personal loans, or traditional signature loans.
|How payday loans compare to personal loans|
|Payday loan||Personal loan|
|Average loan amount||$375||$11,700|
|Typical terms||2 to 4 weeks||12 to 144 months|
|Average fees||$55 for a two-week loan||1% to 8% of the loan amount|
|Credit score requirement||N/A||As low as 500|
Are payday loans worth the cost?
A payday loan can be a helpful tool during tough times. But there are several dangers that can sink you even further into debt:
- Most payday loans require repayment in full within just a few weeks
- They come with hefty interest rates in the triple digits
- You’re liable to incur a variety of charges for nonpayment, including late fees, returned payment fees or insufficient funds fees
They can be a viable option for borrowers with bad credit and limited access to traditional credit, such as personal loans or credit cards. As many as 12 million Americans take out payday loans every year, according to Pew Charitable Trusts, and 70% of those borrowers use the funds for basic expenses, including rent and utilities.
It’s vital to remember that some payday lenders target financially vulnerable groups. Payday lenders are more likely to set up in areas with:
- Higher-than-average poverty rates
- Lower income levels
- More single parents
If you’re unable to repay a payday loan, the lender may let you renew or roll over the initial loan for a finance charge. This can lead to being stuck in a vicious cycle of debt and poverty.
|Pros and cons of a payday loan|
|Quick access to funds||Hefty interest rates|
|Can receive loans for $500 or less||Short terms|
|Available to those with bad credit||Typically repaid in lump sum|
Alternatives to signature loans with no credit check
Payday alternative loans
Some credit unions offer payday alternative loans (PAL) to their members with poor credit who need a short-term loan. A PAL can offer you greater financial stability and less risk than electronic signature loans with no credit check.
PALs are regulated by the National Credit Union Administration, which is a federal agency. You must be a member of a credit union for at least one month before applying for a PAL.
Credit unions can only charge up to $20 for application fees on payday alternative loans, which are available for amounts between $200 and $1,000. Unlike most traditional payday loans, you’ll have one to six months to pay off the PAL. You can only receive three PALs in a six-month period.
Secured credit cards
Secured credit cards could offer increased credit lines for smaller security deposits. It could make sense to go with a secured credit card that not only provides you with the funds you need but can help you build or rebuild your credit.
|Secured credit card details|
|Amount||Dependent on creditworthiness|
|Terms||Dependent on credit card|
|Who qualifies?||Those new to credit up to those with excellent credit|
Home equity loans or home equity lines of credit
Home equity loan
Home equity loans provide you with money borrowed against the value of your property. Most lenders allow you to borrow up to 85% of your home’s value, and you receive the cash upfront.
Once you’ve paid closing costs (usually 2% to 5% of the loan amount) and other fees, you typically repay the principal and interest over five to 15 years, though you can get up to 30 years.
Home equity loans are secured because your property is the collateral. This makes it safer for banks to loan you money, which usually translates to lower interest rates and larger borrowing amounts. However, failure to repay the loan can result in losing your house.
|Home equity loan details|
|Loan amount||Typically up to 85% of your home’s value|
|Terms||Up to 30 years|
|Who qualifies?||Those with equity in their home and a good to excellent credit score|
Home equity line of credit
Home equity lines of credit, or HELOCs, are similar to home equity loans in that they’re based on your home’s value, but you receive a borrowing limit (like a credit card) that you pay off over time.
Most HELOC borrowing limits go up to 80% to 90% of your home’s equity value. You may also be subject to more in-depth checks on your:
- Credit score
- Current income
- Monthly debts
Most HELOCs come with variable interest rates. This can make it more challenging to plan your budget because the payment amounts are less predictable.
|Home equity line of credit details|
|Loan amount||Typically up to 80% to 90% of your home’s value|
|Terms||10-year draw period; 15- to 20-year repayment period|
|Who qualifies?||Those with equity in their home and has a good-to-excellent credit score|
Why it’s worth waiting over taking out a signature loan with no credit check
Signature loans with no credit check could destroy your financial stability. Along with the high interest rates and short repayment terms, you won’t receive a boost to your credit score since most payday lenders don’t report positive payments to the credit bureaus.
Weighing the risk versus the reward can be helpful even in the worst financial situations. Because signature loans with no credit checks and payday loans can leave you in precarious spots, consider slashing your budget to only the essentials or picking up a side hustle to earn extra cash.
While you may be sacrificing your time or your favorite streaming service, it may be worth it in the long run to avoid the potential negative consequences of a signature loan with no credit check.