Nowadays, in a tough economic climate, many people are struggling with little to no savings, a low income, and poor credit. This becomes a problem when unexpected costs pop up like medical bills or car repairs and there is no extra cash to spare.
When the time comes, you might want to apply for a loan to tide over your finances when an emergency pops up. But what about your credit score? If you don’t yet have a credit score or if you are worried that applying for a loan is going to hurt your credit score, you might what to consider a no credit check loan.
No Credit Check Loans
Generally speaking, when you have a weak credit score, you are less likely to be granted a loan from the banks or an online lender. An alternative option, however, could be to take out a type of loan from a direct lender called a no credit check loan.
No credit check loans are most often offered to people with bad credit as well as blacklisted citizens, which can be reassuring when you are desperately in need of some cash and you get rejected for all other kinds of loans.
As South Africans in a tough economic climate, it can be difficult when you suddenly find yourself in debt and unemployed to honour your debts each month. Therefore, no credit check loans are available.
Do Your Research
Before diving in headfirst and applying for a no credit check loan, do your research first to ensure you don’t land yourself in hot water sometime in the future. Try your best to avoid predatory loans in the form of title loans or payday loans.
These will generally cost you way more in the long run and leave your worse off than before you took out the loan. Payday loans are fast, short-term loans but typically have high interest rates.
A title loan is a very risky type of loan since you secure the funds with the title of your car. These also have very high interest rates and you are expected to pay the loans back in a short space of time. The danger of title loans is if you can’t repay the loan in time and it rolls over one too many times, the lender can repossess your car as payment for your debt.
How do No Credit Check Loans Work?
Chances are, if you are taking out a loan with no credit check, then it is a payday loan or title loan. These loans carry excessively high-interest rates of 350% per annum or higher and run on extremely short terms of between 2 and 4 weeks.
This combination makes it impossible to pay back for most people, trapping them in a cycle of debt. Since most borrowers need to extend their loan due to lack of funds, they end up extending regularly until they are simply paying off the interest month on month.
Why Your Credit Score Matters
Maintaining a good credit score is highly important for your financial well-being. Even though times are tough, and you may not be able to regularly save for a rainy day, having a good credit score can leave you in a favourable position when you run into an emergency that requires extra cash.
While this is not always possible given our current economic climate, it is something that we should strive for on a monthly basis. When banks and financial institutions perform credit checks following a loan application, a record is made on your credit report.
If you have made many requests for loans that have all been denied, this will be unfavourable to lenders and they will continue to reject future applications until your financial situation and credit score changes.