Sounds like a really good deal. The blunt reality is that it’s not that simple. Often, the process of getting loans can be overwhelming, especially when you’re not sure that you qualify for a particular sum of money. The online space has become an alternative to other mainstream ways of going around this. Sadly, while you may hear “no credit check” and assume that this is the case, most times, it is not.
Online or otherwise, there are truly no loans that don’t require any credit check at all. Instead, what happens is that online lenders go through the process of engaging unconventional underwriting processes, which would easily appear to be lax but would eventually reveal themselves as quite restrictive.
The diversity on how the process is managed will depend on the online lender. However, given the goal to offer funds quickly without a chain of procedures, the underwriting system only evaluates the financial profile of the borrower instead of going with the FICO scores like next pay date or bank loans. With this kind of model, it means that prospective borrowers can be offered a better alternative when they need money quickly, without having to fall into the trap of debt.
The online lending process with no credit check
Now that you understand that “no credit check” is not necessarily a full clear from routine checks, it’s important to understand how online loans with no credit work. For most online loans, the initial application process is necessary because most of the loan sites are not operated by the actual lenders but aggregators. While the normal lender with credit check will go through the major credit reporting agencies to conduct their check, the no-credit-check lenders will use alternative services. These alternative services focus on terminated bank accounts as well as bounced checks. If borrowers make it past this stage, demonstrating that they have a genuine and regular income source, like paychecks, then they get approved.
There is more trust in knowing that your loan application will go through a credit check. This is because you will know your ability to secure a loan but also get friendly terms that will not see you having to get payday loans to attempt to survive and pay off the original loan. Even beyond whether the loan application will go through, it’s more useful to ensure that the terms of receiving the loan are within your grip and they are comfortable for you. At the end of the day, the hassle to pay up will always rest on the borrower.
Avoiding the traps of no credit check lenders
While there are multiple online loan providing services, it’s important to carry out a thorough background check of the service you settle with. If possible, interview them and ask some hard questions. As mentioned earlier, online loans with no credit check could easily be concealing a trap. While the process of acquiring the loan may seem easy, one could be up for high-interest rates on the loans. This means that while you didn’t feel the pain in having to access the loan, it will be there while repaying it.
Worse yet, some of these online loans are set with very short repayment periods, which are often informed and pegged on the next upcoming checks. That said, many payday loan borrowers will be required to be paid back within 10 days or even a week. The lenders of such payday online loans have defended their style as being a result of the high default rate that comes with such payday loans. On the other hand, the borrower could argue that payday loans are given around conditions that make it inevitable to default.
The effect of such conditions and subsequent defaults by borrowers exposes them to the option of rollover loans, which is a new loan with fresh fees and interest charges. What this means is that the typical online loans may appear too good to be true, but could later end up tying the borrower into multiple annual payday loans. That means payday loans end up being the solution to pay their original loans, which eventually makes it hard to pay off the payday loans.