Often, the best way to book a great trip at a great rate is to take advantage of any package deals or special offers available. Because these offers are usually available for a limited time, you may not be able to save enough to pay before they expire. Using a loan to overcome this hurdle can be a great option, but taking out a vacation loan with no credit checks is never a good idea.
While they seem great on the surface, no credit check loans are full of pitfalls that you can easily stumble into. By the time it’s all said and done, you can end up owing more than your vacation costs or could ever be worth.
In the next few paragraphs, I’ll lay out four reasons why no credit check loans are never a safe bet and suggest some alternative loans that you can use instead.
1. No Credit Check Loans Carry Much Higher Rates
No matter how good your credit score is, you’ll always pay higher rates with a no credit check loan.
On average, even a person with an excellent credit score will pay more than normal. With a normal lender, a credit score between 720 and 800 can yield an APR as low as 4.50%. With a no credit check loan, the APR averages between 300 and 500%.
To illustrate this in dollars, if you took out a loan of $1,000 at a 4.50% APR, you’d only be paying back $1,045 in total. That same $1,000 would cost you $3,000 with a no credit check loan at 300% APR.
2. They Can Damage Your Credit Score
People seek out no credit check loans for a variety of reasons. Some of these include:
- Having poor credit
- Wanting to avoid having their credit score drop
- Need money fast
- Don’t want to pay out of pocket for big purchases
No matter the reason, whether to afford a vacation, to buy Christmas gifts or whatever, the main draw for most of these shoppers is that they believe their credit score won’t become a factor. This couldn’t be further from the truth.
While it’s true that no check on your credit will be made to approve you for these loans, the terms they carry have a high risk of wrecking your score. As I’ll discuss later on, no credit check loans are designed so that they’re nearly impossible to repay. As you continue to miss payments and accumulate more debt, your credit score will deteriorate.
By using a no credit check loan, you haven’t saved your credit score – you’ve invited the opportunity to destroy it. There are plenty of better alternatives you can use without damaging your score.
3. They Often Require You to Pay Upfront
One of the most common tactics a no credit check lender employees is to make you pay an expensive fee before you’re even approved for the loan. Usually, these fees range anywhere from $50 to $150. While most loans have associated fees, you should never be required to pay money before you’ve even been approved.
Traditional and bad credit lenders, by contrast, only require that you pay fees once your loan is approved. You may not even have to pay these fees upfront and can instead have them compiled into your monthly payments.
Another common tactic is for the no credit lender to demand that you write out a check for the full amount that you owe. You’ll only get the check back once the loan is paid in full. If you don’t, they deposit the check.
4. They’re Designed to Trap You In Debt
The ideal scenario for a no credit check loan goes like this. You’re approved for your loan and then have between two to four weeks to pay it back. Using that example of the $1,000 loan from before, that means you have to pay back around $3,000. I don’t know many people who can afford to pay that kind of cash in so short a time.
You miss your payment, and the next thing you know, the lender is willing to extend your loan. However, they’ll also tag on a late fee and more interest. You’re now stuck paying off the additional debt, at an even higher rate than before. At this point, you’re already trapped, and there’s no easy way out.
Who’s at Risk the Most?
No credit check loans are typically marketed at those with lower incomes. According to a report by the Consumer Financial Protection Bureau, 31% of all no credit check and payday loans taken out in 2013 came from those with between $10,000 and $20,000 in annual income. This is the demographic who struggle to stay out of debt, and often don’t have good credit. It makes them easy prey.
What if I Refuse to Make Further Payments?
While they are predatory, no credit check loans are perfectly legal in many states. That means that once you’ve signed the documents, the loan is backed by the full weight of the law. If you stop paying, your lender has every right to report you to a debt collection agency or take you to court. It can be difficult to win your case when there are documents clearly showing you agreed to the terms of the loan.
A Better Alternative to Fund a Vacation
If you need a loan to fund a vacation, no matter how desperately, I think it’s pretty clear at this point why a no credit check loan is never an option to consider. There’s too much risk, and even if you can afford it, you’re paying far too much.
If you have good credit, you can consider taking out a loan from a traditional lender, or even a credit union. It might take longer, but better to miss a vacation than become trapped in debt.
Even if your credit is poor, there are plenty of opportunities for you to secure a bad credit loan. In fact, now’s a perfect time. Experian Automotive reported that the approval rates for loans with poor to fair credit have increased 11.4% in recent years. Considering that this percentage was less than 3% about a decade ago, that’s a huge increase.
No credit check loans are nothing but a scam. A reputable lender understands that a poor credit score may not be your fault, but that doesn’t mean they don’t care about it. They’ll take your score into consideration, but they’ll also work with you to get a loan that you can feasibly afford and repay at a manageable rate.