Short-term, no-credit-check installment loans are perhaps the most expensive loans available. A random survey in March 2011 showed various online lenders offering installment loans with interest rates exceeding 900 percent. The loans target people who are desperate for credit but have poor credit ratings. Some people rely on short-term, high interest loans to cover monthly expenses or emergencies.
Examples of short-term loans without a credit check include payday loans, pawn shop loans and car title loans. The loans offer fast approval with cash available within hours or sooner. Payday loans are among the most well known, allowing people to borrow simply by presenting a valid personal check. Payments are electronically deducted from the checking account on the borrower's payday. Pawn shop loans require collateral such as jewelry or even work tools. Clear title loans require clear title to an automobile or truck.
The Federal Trade Commission strongly encourages people to stay away from payday loans and other costly installment loans. The agency maintains that incredibly high interest rates associated with the the loans creates spiraling debt and could lead to bankruptcy. For some people bankruptcy and reorganization of debt is a better option than paying hundreds or thousands of dollars each year in finance charges from short-term loans.
Some credit unions offer an alternative to typical payday loans. The National Credit Union Foundation reports that some credit unions offer short-term loans with interest rates totaling as little as $3 a month. The programs are designed for credit union members and require a credit check. However, any credit score is acceptable if the applicant does not have current delinquent loan obligations, including charge offs and judgments. The credit requirement rules out some frequent users of payday loans, but the program offers a safety net for others who are maxed out on traditional forms of credit but have somewhat respectable credit.
The Federal Trade Commission recommends credit counseling for people frequently needing payday loans. Nonprofit counselors are available in most communities and offer initial consultations that are usually free. Counselors approved by the U.S. Department of Housing and Urban Development will review your entire financial situation to make suggestions about possible improvements. Possibilities include debt management plans that allow the counseling agency to take full control of your household budget.
- Federal Trade Commission: Payday Loans Equal Very Costly Cash: Consumers Urged to Consider the Alternatives; March 2008
- Rebuild.org: 7 Things to Remember When Getting a Pawn Shop Loan; May 2009
- CNN: Why Car Title Loans Are A Bad Idea; Christopher Neiger; Oct. 8, 2008
- Cash Net USA: Texas Payday Loan Fee Schedule
- National Credit Union Foundation: Credit Unions Make Payday Loans Affordable