A no credit check loan might sound like a great idea when you have a pressing need to access cash. However, no credit check loans can also have some major drawbacks — especially if you’re not prepared for them.
Let’s take a closer look at what a no credit check loan is. We’ll cover the advantages and disadvantages tied to them, and how to make an informed decision about requesting one.
What is a No Credit Check Loan?
A no credit check loan is a relatively simple concept. It’s an instalment loan (meaning the loan is repaid with monthly payments) that doesn’t include a credit check. Removing that requirement can make this personal loan seem more accessible to a broader range of individuals. However, it also makes the loan more expensive, thanks to fees and higher interest rates.
It’s common for people with a bad credit score, and for those who had a poor credit score in the past, to consider these loans. Because more traditional forms of lending may not be as available, a no credit check loan can seem like a realistic choice.
Such loans also tend to feature streamlined application processes, with an online application option for even more convenience. Advertising related to them often focuses on the fast delivery of funds. Specific terms and phrases you may hear tied to marketing for no credit check loans include:
- No Credit Check Loans Online with Instant Approval
- No Credit Check Personal Loans with Guaranteed Approval
- Online Loans with No Credit Check and Instant Approval in Canada
In all three examples, the type of loan those terms reference is even more accessible. By guaranteeing approval, the lender is going beyond the promise of a no credit check loan — they’re saying almost anyone can apply for and receive funds.
No credit check loans are often, but not always, offered as payday loans or bad credit loans. They can also fall under the larger category of emergency loans.
Pros and Cons of No Credit Check Loans
Advantages of a Loan with No Credit Check
The major advantages of no credit check loans include:
- High approval rates, making them attractive to those with lower credit scores
- Faster access to funds, which is important in an emergency
- A simpler application process, making things more convenient for borrowers
Sound good? Well, the drawbacks of no credit check loans can far outweigh the advantages.
Disadvantages of No Credit Check Loans
For financial institutions and other lenders, assessing risks is a crucial part of the lending process. Just about every loan includes interest in addition to the principal— that’s the basic incentive for lenders to work with you. However, lenders also want to make sure that every loan they make is paid back.
Payday lenders and similar providers take the additional risk of lending without doing a credit check into account. They charge additional fees to address that risk, or set higher fee amounts. Interest rates also tend to be extremely high.
The federal Department of Finance published a consultation paper that points out the current nationwide limit for loan interest is a 60% annual effective rate! While not all no credit check loans have a rate near that limit, many do.
Without a good plan for repayment, high interest rates can trap you in a cycle of debt. Especially when you’re facing a 60% annual effective rate! That’s not something anyone wants to deal with.
Finding an Accessible and Reasonable Loan
As a member of Innovation, you can apply for a Line of Credit that offers many of the same benefits without the high-cost drawbacks. It’s a safety net attached to your chequing account and you only pay interest on the amount you’re currently using!
Interested, but not sure if you’ll receive approval for a Line of Credit? Consider finding a guarantor — someone who will make your loan payments if you can’t make them yourself. A family member or close friend applying alongside you as a guarantor can make approval that much easier.
We also have an option available called a Fresh Start Loan if you have a no-to-low credit score. This unique alternative lets you not only improve your credit rating, but also build your savings at the same time!
Learn more about a Line of Credit and Fresh Start Loans to help save on interest and fees. Open a free account with Innovation to get started!