When people think of short-term loans they often envision someone with a low paying job and poor to no credit. With non-traditional lending, short term loans can range from payday loans to a collateral loan. They often come with high-interest and less than six months to repay.
The reality is, as economic conditions take a downward trend, the face of short-term lending is quickly changing. Middle-income families are using them more as a long-term solution to financial difficulties.
This can have a negative effect if not used wisely.
Are you struggling financially and tempted to seek quick no credit check loans? Keep reading to learn why fast loans are not always the best answer.
Financial Problems Require a Long-Term Solution
Too often financial setbacks are seen as a temporary problem. In essence, anytime we endure hardship it has long-lasting effects. A medical episode, emergency car repair, or replacing a major appliance impact a budget already stretched too thin.
The longer money issues float below the surface chances are your credit is being impacted. As a result, when you finally need a loan, you realize your credit score has dropped.
The best solution is, to be honest about your finances. Look for ways to cut expenses and temporarily cut unnecessary spending. Try to put money aside even if it is in small increments.
If you have an emergency, you’ll have some money set aside.
Short Term Loans Can Become Habit Forming
Short-term loans are easy to get. For this reason, it is easy for them to be your go-to solution. With payday loans, you are borrowing against your upcoming paychecks.
Whatever bills you need to cover may be set aside because the money is then used to repay existing loans. In this scenario, late fees can accumulate, and your reputation with the lender damaged.
The quick solution is to request an extension or take out another loan.
Once the cycle starts, it is hard to stop. Your options to break the habit include seeking a loan that has a longer repayment period. Or you can try borrowing money from a family member or friend.
They Cost More in the Long Run
Quick no credit score loans often come with higher interest rates. Borrowers do not realize how much these loans can cost them until they become a long-term solution.
Take a payday loan as an example. You go in and below $500 for a two to three week period. The fee for the loan is $50. To the average person, the cost of the loan is only 10%. It also seems to be a reasonable amount to pay.
Now take into consideration with a traditional bank that same $500 could come with a 12-month repayment plan. You’ll pay the same amount of interest and loan fees but the actual interest rates are miles apart.
Using this same scenario where you are unable to repay the payday loan when it is due. The lender will extend the loan repayment period with no problem. However, you’ll have to pay another $50 fee increasing the interest.
With a bank, you’re given the option of entering into a forbearance. This allows you to skip a month or two and tack the payments onto the end of the loan.
You May Have to Sign-up for ACH or EFT
An important aspect of quick no credit score loans involves how the lender guarantees repayment. Although there is no credit check, you’ll need to guarantee your ability to repay the money.
This often comes with a requirement for the borrower to provide their banking information. You give the lender permission to perform an ACH or EFT draft from the designated bank account. These drafts coincide with their employment pay schedule and funds availabilty.
Some lenders may also request a postdated check.
The borrower has to notify the lender if they will not be able to cover the repayment. In this instance, they are granted a few extra days or have to enter into a new loan.
Your Credit Score Will Not Improve
Fast loans will not improve your credit. These are not traditional bank loans, so they are not protected by banking rules. The lender assumes all responsibility when making quick no credit score loans.
For this reason, your loan nor the payment history gets reported to credit bureaus.
There is a downside. If you fail to repay your loan, the lender can use the services of a debt collection agency. Once a debt collector buys your outstanding loan, that agency can report your uncollected date.
This will further hurt you because it will appear as an immediate unpaid debt. Collections remain on your credit report for years, even after the money has been repaid.
Collateral Loans Can Cost You Your Car or Other Valuables
Collateral loans are short-term loans requiring an item of value to secure the loan. If the borrower fails to repay the loan, the lender can sell the collateral to recoup their loss.
A popular fast loan requiring collateral is auto title loans. These are loans secured by a car title. The borrower must have a clear title to the vehicle. The loan amount is based on the value of the car.
If you have paid off your car loan, using it to get quick cash and keep the car sounds like an easy solution. Like other loans, you must repay the money and not use future income dedicated to other expenses.
Using your vehicle as collateral means you are paying money using an item that is depreciating by the day. Over time, you can end up paying more than the car is worth.
It’s Time to Create a Repayment Plan
To avoid turning a short-term loan into a long-term solution, be clear about your objectives. Only borrow money when it is absolutely necessary.
If you are ever in need of a fast loan, we are here to help. Click here to claim your cash now.