Are short term loans with no credit check advisable?
Are short term loans with no credit check advisable?
15 January 2020 Concept Car
Short term loans with no credit check sound tempting. Who wouldn’t want money without the hassle (and, sometimes, humiliation) of going through a lengthy application process?
Reality isn’t quite as rosy, unfortunately. In this article, we’ll explain what short term loans with no credit check really are – and why you’d better stay away from them.
What are we talking about?
First off, though, let’s establish what these loans are and how they work.
This particular type of loan is still a fairly recent development. So recent, in fact, that they don’t yet have a catchy name. Abbreviating them into STLNCC certainly won’t help much.
This is why they straddle the line between conventional loans and more experimental approaches. It is also why they are not quite as regulated as other financial instruments.
As the term already implies, you can get these loans quickly. But you also need to pay them back quickly. We are not talking about years here, but months or even weeks. Mostly, the overall loan sum will be comparatively low. And the interest rate can conversely be very high.
Importantly, you do not need to go through a credit check procedure. Eligibility is usually determined according to your income. If it’s high enough and employment fairly secure, the lender will simply assume you’ll be able to pay back the loan eventually.
STLNCC vs Payday Loans: The same thing?
Does all of this remind you of something? Indeed, short term loans with no credit check are essentially the same as payday loans. We’ve discussed these several times before on this blog. And our analysis has not always been kind to them.
In fact, short term loans with no credit check are sometimes referred to as ‘payday instalment loans’. This is because there is one subtle difference between them. You pay back payday loans in a single lump payment. On the other hand, you pay back short term loans with no credit check in monthly instalments, just like a regular credit.
The confusion around these two instruments is augmented by the fact that there are no clear borders between them. On the upside, you can learn a lot from the problems around payday loans when it comes to this new breed of loans.
The basic problem I: It’s just not for cars
The first and most obvious word of warning revolves around the short term nature of these loans. Just like payday arrangements, short term loans with no credit check are intended to bridge minor financial gaps. They’re not suited for bigger purchases, let alone a major investment such as a car.
The reason is simple. Because loan sums are low and loan terms short, payday loans and STLNCC work with extremely high APRs of up to 800-1000%. This is often described as predatory. But a high interest rate is the only way a lender can make money on this type of loan.
If you need a little extra cash to afford the groceries at the end of the month, then a payday loan can be a godsend. If, however, you want to buy a car, they’re simply the wrong form of financing.
The basic problem II: Credit checks are there for a reason
The thing about short term loans with no credit checks is that they sound great on paper, but are actually quite problematic. Credit checks have a bad reputation and for most of us, they can be a terrible nuisance. By default, they make financing more expensive that you’d like. And more often than not, they prevent you from getting a credit at all.
On the other hand, credit checks are there for a reason. They are not just there to protect lenders. Their purpose is to protect you as well. If your credit rating is bad, then you’ll find it hard to repay a loan in full or in time. In both cases, you run the danger of defaulting on your loan. In some cases, there may be a real danger of bankruptcy.
This is why short term loans with no credit check are so dangerous: They pretend as though everyone can just go out and borrow money without consequences. But, there are always consequences.
Alternatives to short term loans with no credit check
If you’re finding it hard to secure a regular loan for your car because of a bad credit rating, there are better alternatives than short term- or payday loans.
Leasing is one of them. In a leasing arrangement, you don’t own the car and only finance the depreciation. This means that monthly instalments are a lot lower than with a traditional loan. If you can not afford to buy a car, you can often still afford to lease one. However, do note that dealers will still typically perform a credit check for a leasing deal.
Credit unions are another viable alternative. The main goal of these organisations is not to maximise their profits. So they can set interest rates at a lower level. Although they’re often touted as the ideal financing partners, credit unions are not a panacea.
Personalised deals with CCC
Finally, you can work with a car dealer like Concept Car Credit to work out a personalised deal. At Concept, we do sometimes work with credit checks, but we take other factors into consideration as well. Our main concern is to find a solution that works for both sides. Sometimes, a credit check can get in the way of that.
We tend to arrange things in a way that leads to an affordable monthly instalment. Just as with leasing, this may make the loan a little more expensive. But it insures that you can actually repay your obligations in full. Best of all, it usually means that we won’t have to turn you down because of a bad score.
Compared to this, short term loans with no credit check sound rather irresponsible. Contact us now for a free financing offer and take a look at the cars in our showroom to see what we have on offer.