During the holiday season, there’s plenty to look forward to. People use the occasion to reunite with family, eat too much food, and exchange gifts. It truly does make for the most wonderful time of the year. But it comes at a cost: Christmas can be very expensive. Many people have to rely on a loan just to fund their Christmas shopping, not to mention any food and travel expenses. If they have no credit, they often turn to Christmas loans with no credit check to get the money they need.
While it seems feasible on the surface, there are many things no credit check loans that are often left unsaid by the lenders offering them. This can not only lead to loan seekers missing out on a better deal but also falling into debt that they can never get out of.
Before you decide to pursue a no credit check loan to fund your holiday season, read the following information carefully and use it to make a better decision.
You May Not Get Much Money
More often than not, no credit check loans have far smaller loan limits than other types of loans. In fact, certain state laws prohibit no credit lenders from lending above a certain amount. Alabama, for example, limits no credit check loans to $500 at a time.
Why the Limitation?
Primarily, it’s because many no credit check loans are scams to trap you in debt. The Federal Trade Commission reported that Americans lost an estimated $905 million to scams in 2017. Much of that loss was the result of no credit loan scams designed to trap you with recurring debts that continue to grow. As more people became aware these scams, state governments took action to protect their citizens.
How Much do Other Loans Offer?
This depends on both your credit score and the individual lender, but most personal loans range from $500 to about $50,000. Some personal lenders are even willing to go as high as $100,000.
They Cost Far More Than Other Loans
Even a person with a terrible credit score usually doesn’t receive higher than a 36% APR with normal loans, according to the U.S. News & World Report. By contrast, no credit check loans can charge an APR as high as 500%. That means if you took out the maximum amount of $500, you’d be paying back a total of $3,000.
Why do They Charge so Much?
Mostly, it’s because scammers want to make it impossible for you to pay back your loan. By charging high amounts, predatory lenders make it very likely that you’ll default on your loan. This will ensure that you stay indebted to them.
You Won’t Have Much Time to Pay it Back
On average, a no credit check loan only allows between two and four weeks to pay back in full. Coupled with the exceptionally high APRs, it’s not hard to see why Time Magazine reported that nearly 50% of all no credit borrowers ending up defaulting on their loans in 2013.
Why is There so Little Time to Pay it Back?
Again, it’s a key step in the scam. By allowing you little time to pay back your loan, the lender is creating a situation where you’re at their mercy. Once you’ve defaulted, the lender will often offer to extend your loan for an additional fee. But even then, they’ll only give you another two to four weeks, even though you owe more money at this point.
Many Require a Form of Collateral
In many instances, lenders who offer no credit check loans require you to give up something in advance to “secure” the loan. Also referred to as title loans, these types of no credit check loans require that you surrender your car title as a form of collateral prior to receiving your money. In the event that you default on your loan, the lender has the right to seize your vehicle. This is often what the lender is really after, instead of your money.
Other no credit lenders will demand a fee, sometimes called an advance fee, prior to taking your money. While the rate varies, it can run as high as 75% of your loan amount. While it’s not unusual for there to be associated fees with most loans, the difference here is that the lender often requires you to pay before you’re even presented the terms of the loan.
No Credit Lenders are Banking on Your Desperation
If everything you’ve just read sounds absolutely disgusting, that’s because it is. Under normal circumstances, no one in their right mind would agree to such terms. The problem is that the majority of no credit borrowers don’t have normal circumstances.
Around the holidays, even the poorest of people want to be able to get gifts for their children and loved ones. They often sacrifice throughout the year just to be able to afford their Christmas shopping but it’s still not always enough. Predatory lenders know just how desperate you are to get money for the season. When you’re desperate, you don’t make the kind of well-reasoned decisions you normally would.
There are Better Alternatives
The most important thing that you need to know, that no credit lenders won’t tell you, is that there are better options available. These options can get you your money just as quickly as a no credit loan, offer higher amounts of money, and most importantly, don’t carry such a high risk of defaulting. Even if you have no credit or poor credit, better options you can use to get money for Christmas include:
– Bad Credit Loans
These loans are specifically designed for people whose credit score ranges from 450 to around 600. They offer much lower APRs than no credit check loans and allow from one to five years to repay.
– Credit Union Loans
Many credit unions offer loans at competitive rates to members of the union. They often don’t require a credit check and lend high dollar amounts. The main reservation is that gaining membership can be difficult.
– Peer-to-Peer Loans
These are loans made between private individuals. Whether or not a credit check is required, and the amount they’ll lend depends on the individual. Interest rates tend to be some of the lowest on the market. However, a great deal of research is required on your part, as many posing as peer lenders are scammers.