The Pitfalls of No Credit Check Loans
The pitfalls of no credit check loans will no doubt be apparent to borrowers who have actually used them. No credit check loans will consist of very high interest rates that push the boundaries of the guidelines set down by the Consumer Credit Act. No credit check loans are never suitable for long term lending, yet many borrowers will repeatedly make use of these loans.
What are No Credit Check Loans?
No credit check loans are easy to find especially if you have a bad credit history. In fact if you have a bad credit history then no credit check loans may be just about the only loan option available. Lenders that specialise in this type of loan will target borrowers with bad credit records using advertisement claiming “no credit checks” and “bad credit not a problem”.No credit check lenders will also offer low interest loans and this annual percentage rate (APR) will be stated in advertisements. It is only when borrowers with bad credit records apply for these low interest rates that they are told they will only be eligible for the higher interest rate. With few alternatives, the borrower will then simply take the high interest rate offered.
The Pitfalls of No Credit Check Loans
No credit check loans can be used as a very short term loan solution. However, debt problems can occur because borrowers will go back time and again to these lenders as they have little alternative in the form of loan options. This can then turn into a continuous loan cycle with huge amounts being paid to the lender in the form of high interest payments.Charges and Fees
Other pitfalls of no credit check loans are missed and late payments. If a borrower misses or is late with their payments then they will be charged fees. Normal lenders will also apply charges, but with no credit check lenders the interest will be higher and therefore the interest on missed payments will also be higher. If this continues, the interest on missed payments can soon mount up and it can be years before a loan is fully repaid.Why Interest Rates are High
One of the reasons that the interest is extremely high with no credit check lenders is that the risk for the lenders is also high. Lenders are supplying loans to people with bad credit records, and the lenders are claiming not to check their credit records. It is fairly obvious that if a borrower is going to a no credit check lender then they cannot receive credit elsewhere. There is a high possibility that these borrowers will default on the loan and this is the reason for the very high interest.Where to Find No Credit Check Lenders
If you have a bad credit record and have been applying, and been turned down for normal interest rate loans, then no credit check lenders will usually find you. These lenders will be able to buy the names, addresses and email addresses of borrowers that have been turned down for normal interest rate loans. They will then get in touch offering no credit check loans hoping to tempt the borrower to take one of their loans.Advantages of No Credit Check Loans
There may be one advantage of a no credit check loan and that is rebuilding a bad credit record. If the loan is over a long enough period and no payments are missed or late then this will show on the borrower’s credit record. However due to the high repayments most borrowers find repaying on time and in full a hard task to achieve.Information Needed for Applications
Only the most basic information is needed for a no credit check loan. This will take the form of a tenancy agreement or proof of address such as a utility bill. Although lenders will not run credit checks they will need to know that the repayments can be made, so payslips or benefit payment books will be required as proof of income.The main pitfalls of no credit check loans are the high interest rates and likelihood of repeat borrowing. This type of loan is never a good idea as a long term debt solution. Borrowers who do have serious debt problems may benefit by seeking advice from their local Citizens Advice Bureau or from the Credit Counselling Service.
