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Signature Loans with No Credit Check: Don’t Get Ripped Off

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A signature loan, also referred to as an unsecured loan, doesn’t require you to put down collateral in order to qualify. Because lenders don’t have collateral to fall back on in case you default on your loan, they are particularly discerning about who they’ll give signature loans to. You’ll undergo a thorough credit check and the requirements for such loans are stringent.

If you have bad credit and are looking for a signature loan with no credit check, you’ll need to be wary of scammers who are out to take advantage of your situation. There are common signature loan scams that promise you a lot but aren’t realistic. Here’s what you need to be watching for when it comes to signature loan scams.

Deceptive ads for a signature loan with no credit check

Despite the fact that legitimate signature loans will require you to undergo a credit check, you might see a lot of ads that claim you can get a signature loan with no credit check. What’s going on there? Once you peel back the layers on what these ads are actually offering, you’ll likely see that the products are more similar to payday loans or title loans.

Not familiar with the differences between these financial products? Here’s how they work:

  • A payday loan is a loan that is extended to you using your next paycheck as security. Its term is short, usually just until your next payday. The fees and interest associated with payday loans make them an expensive product. Typically they have an APR of about 400%. You might also hear a payday loan referred to as a check advance or a cash advance loan — they’re all essentially the same product.
  • A title loan typically uses the title of your car as security for the loan. The term for these loans is typically about 30 days.

Here are a few telltale signs that can help you spot the difference between a legitimate signature loan and a different product:

  • Signature loans require no collateral, while payday loans and title loans do. Payday loans use your next paycheck as collateral, while title loans use the title to personal property as collateral.
  • Signature loans may have terms ranging from a few months to several years, while the term on a payday loan is typically two weeks.
  • Signature loans typically have lower interest rates and fees than a payday loan or check advance, which are known for being expensive forms of debt.

Payday loans and check advances can be detrimental to your financial health. They could kick off a cycle of debt that can be difficult to get out of. Also, unlike traditional loans, payday loans do not help improve your credit score, as payday lenders don’t typically report positive payments to the credit bureaus. So, even if you do manage to repay this debt it won’t help you improve your credit to get better financial products in the future.

Finding a loan for bad credit

So, what do you do if you have bad credit but need a signature loan? There are some lenders who will still loan you funds even if you have bad credit. The catch is that these lenders could charge high interest rates or fees.

That’s why, if you have bad credit, it might be a better financial move to look into other forms of debt that you could take on that might have lower interest rates and could help you build your credit in the future.

Payday alternative loans

A Payday Alternative Loan (PAL) is a special financial product created by the federal government to help people who need short term, small dollar loans. If you need enough money to tie you over until your next payday but don’t want to rely on a payday loan, you could try a PAL instead. They are available at federal credit unions; however, note that one of the requirements is that you’ll need to have been a member of the credit union for one month before you can be eligible to receive a PAL. These loans range from $200 to $1,000, and you can get up to three PALs in the same six month period.

If you’re interested in applying for a PAL, you can call your local credit union to find out if they offer PALs.

Fees: Credit unions are only allowed to charge an application fee. The fee can only be for the amount needed to recover the administrative costs of lending you the money. The maximum for the fee is $20.

Interest rate: Though interest rates may vary, the highest interest rate you can be charged for a Payday Alternative Loan is 28% APR.

Loan term: The government has set strict regulations on the terms of Payday Alternative Loans. They must be at least one month long and can be up to six months long. Up to three PALs can be granted to you in a 6-month period, but you can only have one PAL at a time, with no overlaps or rollovers.

Extra benefits: Since you have to become a member of a credit union to receive a PAL, shop around to find one that offers free financial counseling to members. You can get help creating a plan toward stabilizing your finances while you work to pay off the PAL.

Secured loans

Secured loans are when you use some collateral to back your loan, essentially telling the lender, “If I don’t pay my loan back, you can take my property to recover the cost of the loan.” There is less risk associated with a secured loan, so if you have bad credit, it could be less of a problem for the lender. Since your positive, timely payments will be reported to a credit bureau, secured loans can help you build credit, although you should confirm that your lender reports to all three credit bureaus before signing for your loan.

It’s ideal if you can build your credit before applying for a loan, but if you don’t have time, here’s how to compare the options for secured loans with bad credit.

Fees: Be on the lookout for fees that could add to the cost of your secured loan. These could be:

  • Prepayment fees
  • Late fees
  • Origination fees

Interest rate: Compare your loan options online to make sure you get the best interest rate possible for your situation. Make sure lenders are doing a soft credit pull to quote your rates so it won’t impact your credit score to shop around.

Term of your loan: Understand the term of your loan and how the length might impact the total cost of the loan. A longer term might mean lower monthly payments, but a more expensive loan overall as you’d be paying interest for longer. A shorter term loan could mean you’d get out of debt faster, but only if you can keep up with the higher payments each month.

Ability to add a co-signer: If you have bad credit or no credit, a co-signer might be able to help you qualify for a loan or get approved for a better interest rate.But not every lender allows co-signers — so if this is an option you want, make sure to check that it’s possible with the lenders you’re comparing.

Extra benefits: Certain lenders might offer perks that could help bring down the cost of the loan or help you while you’re paying it. For example, you may qualify for an interest rate discount for setting up auto-pay, be able to change the day of the month your loan is due or defer a payment.

The information in this article is accurate as of the date of publishing.


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