Loans without credit checks are provided by smaller finance companies to attract customers with bad credit. However, it's important to be aware of the significant risks associated with these types of loans.
Which types of loan companies don't perform credit checks?
Based on our experience, there are two types of loan or credit companies that offer loans without credit checks. They are:
- Rent to Own companies
- Payday loan companies or providers of small amount credit contracts.
Rent to Own companies - what do they do?
A Rent to Own provider offers a contract where you agree to rent a car or appliance from them for a specific period. At the end of the term, there is usually an option to purchase the item at a predetermined price. While these agreements are commonly used for appliances (such as Radio Rentals or Make it Mine), there are now some companies offering similar services for cars. Rent to own companies typically conduct credit checks, but they sometimes advertise loans with credit checks.
Why should you be cautious of Rent to Own companies?
While a Rent to Own contract may seem appealing, there are a few factors to consider. The main drawback is that you won't own the car until you buy it out, so if you want to upgrade during the contract, it may not be possible. Additionally, these contracts often include substantial termination fees, which means that if you want to change/upgrade cars, you may have to a hefty cost. Lastly, most of these contracts include the expenses of maintaining the vehicles, such as registration and servicing. Although it may sound convenient, the provider often adds a mark up to the servicing costs.
When should you consider a Rent to Own option?
If you have been declined for a bad credit car loan due to recent financial defaults, a Rent to Own contract might be the best way for you to get back into a car.
Payday loans - what are they?
Payday loan companies offer small loans (typically under $2,000), with high interest rates (sometimes equivalent to 40% - 48% per annum).
Why should you be cautious of payday loans?
In addition to the high interest rates (up to 48% in some cases), payday loans can have a negative impact on your credit file. When assessing loan applications, certain car or home loan lenders consider the use of payday loans as a negative factor and may decline your application based on that alone.
When should you consider a payday loan?
Payday loans can be useful if you need a quick loan to cover bills or bond expenses. However, there are several alternatives worth considering. You might be eligible for a personal loan with a much lower interest rate. If not, many retailers offer buy now pay later options, which can be viable and more affordable alternatives to payday loans.
What's an alternative to a loan without credit checks?
A great alternative to Rent to Own or Payday loan providers, is to use a bad credit loan specialist. At Responsive Lending, we consider ourselves bad credit specialists because we compare multiple lenders, each with different criteria, to ensure you get the best possible outcome.