When you’re shopping for limited credit experience loans, you are essentially walking through a minefield. Like a minefield, there are safe paths that you can take to your destination, but one wrong step can lead to disaster. This is because there are many lending agencies out there who know how hard it is for people with little credit to get a loan, and they’ll use that to their advantage.
The reason this is so dangerous is simply that it works so perfectly. If you’ve shopped for a loan with limited credit before, you know just how readily most lenders will turn you away. They take one look at your nonexistent credit history and decide you’re too great a risk. It leaves you feeling discouraged, depressed, and desperate. That desperation is what these shady lenders are counting on.
When we struggle, we look for anything that will ease our suffering. In the case of a loan, any lender who is willing to say, “It’s okay. I’ll help you,” seems like a ray of hope. It’s when we’re desperate that we tend to make our biggest mistakes.
With this guide, we’ll explore three of the biggest pitfalls that people find themselves in when they shop for loans with limited credit, give you some tips to spot these often hidden traps, and offer some advice to find a safe, effective loan instead.
Getting Caught Up In Advance Fee Scams
There’s a single phrase that sounds better than any other to a person with limited credit trying to find a loan: “We don’t care about your credit score.” It’s like music to the ears and draws in many shoppers who are already desperate for a loan. But this is likely an indicator of a dangerous scam to avoid.
Advance fee lenders work by promising to deliver a high-quality loan, regardless of your credit, so long as you pay a large amount in advance to secure the loan. They say the fee is simply to ‘guarantee’ the loan, and ensure that you’re serious about pursuing it. These are often very large amounts, often hundreds of dollars, even for loans of a relatively small amount.
What commonly happens after you pay the advance fee is that the ‘lender’ ceases contact with you, won’t reply to your emails and phone calls and disappears with your money.
Now, with that being said, some lenders do charge fees to grant you a loan. These are called origination fees and are most commonly found in mortgages. These fees are meant to essentially pay the lending agent for putting in the work of checking your credentials, compiling your lending terms, preparing your paperwork and spending their time working for you.
The difference between an origination fee and an advance fee is that you pay when you’re ready to close the deal and get the loan, not at the outset of the process.
If a ‘lender’ is asking you for money before you’ve even signed any loan documents, then it’s almost definitely a scam, and you should avoid it at all costs.
Caught Up in a Cycle of Mounting Debt
Two of the most common types of predatory loans on the market are payday loans and title loans. These are two of the most dangerous types of loans you can enter into. They made to look appealing with limited credit borrowers but will quickly trap you in an inescapable pattern of growing debt.
Payday loans are loans with unreasonable interest rates and extremely short repayment timelines. Typically, interest rates range anywhere between 300 and 400%, much higher than even the most expensive credit cards. They usually only allow about two weeks to repay the loan. Often, it’s impossible to meet these requirements, so these lenders offer to extend the loan, with an expensive fee and more interest tagged on. It results in an unending cycle where you’re not even paying off the loan anymore, just the fees and interest.
Military service members and their spouses are often the targets of payday loans since their paycheck is guaranteed every two weeks. Many are also young and inexperienced and this makes them an easy target.
Title loans are similar to payday loans. They also have higher interest rates and short repayment times. The main difference is that in order to secure a title loan, you must surrender the title to either your house or car. The trap works the same way, except instead of tagging on more fees or extending your repayment time, the lender simply takes the asset you committed.
In both instances, lenders don’t really care about getting the principle, or the amount you borrowed, back. They’re more interested in either trapping you in a cycle of recurring payments they can always draw from or taking something from you that’s worth more than the loan.
When you shop, pay special attention to both the interest rate and the repayment times given. Any credible lender will give you at least six months on average to repay a loan. Even loans for people with no credit history don’t charge more than 25% interest amongst most credible lenders. If you encounter any of these, cease all communication with that lender.
Not Comparing Lenders
The greatest tool that predatory lenders have in their arsenal is your ignorance. They’re counting on you not having done enough research to be able to spot a scam, or not being aware enough to know that there are better options available.
The sad reality is that many people launch into a loan search without learning even the basics. They don’t understand terms like interest rate, principle, and credit score. They also don’t take the time to familiarize themselves with credible loan practices or how to spot bad deals like the ones listed above.
Worst of all – they don’t take the time to compare lenders. The introduction talked about desperation, and how we tend to latch onto to the first beacon of safety when we’re struggling. This is often the case for people in debt or looking for online loans to build their credit – they latch on to the first ‘good’ deal they find.
The problem is, even if you luck out and find a credible lender right off the bat, you’re probably not getting the best deal. A good loan isn’t only characterized by low-interest rates – it also means having a reasonable repayment timeline, few or no additional fees, and quality guidance from financial experts. You’ll only find this by researching and comparing different lenders.
This isn’t easy, though. It can take days or even weeks to compile all the options. If you’re desperate for money, this may not be an amount of time you can afford to spend. But it is the only way to find the best loan possible. It’s a Catch-22.
At Loans Now, we offer a way to compile options for no credit loans that you can, and should, take advantage of. Our Loan Discovery program will save you time and effort by compiling multiple offers that you can compare while getting expert lending advice. It’s completely free, and you don’t have to commit to any of the options we provide if you don’t think they suit your needs.
Don’t let yourself be taken advantage of by greedy scam artists. Let Loans Now help you navigate past the pitfalls of the lending world, and arrive at an amazing loan that will allow you to build your credit while you achieve your goals in life.