It just doesn’t make any sense to the average person who has no experience with the world of payday loans how these lenders can offer no credit check payday loans. The whole lending system hinges on people’s credit scores right? If we don’t check their credit we’re going to end up with billions of dollars in defaulted loans. Well, I suppose that’s what has happened with the mortgage industry, but payday loans are actually a different story.
If you look at the qualification process for a payday loan with no credit check, you realize these lenders have figured out what an applicant needs to bring to the table in order to be likely to repay. I did a little checking and found that the four most important things to a payday loan store are:
1. Whether the applicant’s income is set up on direct deposit to their bank. I don’t know if that’s just an indication of financial responsibility, or if the lender could actually has you sign something that says they can garnish your direct deposit income in the event you don’t pay.
2. Whether you’ve held your current job for at least three months. This is interesting because they aren’t checking a credit score, but they are looking for some kind of stability in your life to feel more confident that you’ll pay back your loan.
3. A bank account in your name, which you’ve had open for at least three months. Again, I think they’re just looking for some stability and financial maturity here.
4. $1,000 per month minimum for your net income (which means after taxes). This goes purely to your ability to pay the loan back. Most payday loan operators won’t lend above $1,000, so they’re basically saying we would never lend someone more than one month’s earnings. And I’d guess in most cases they probably won’t even do that. Since $1,000 is the minimum required income, and $1,000 is the maximum available loan, you’re probably looking at more like 25% to 33% of net income as the maximum loan amount.
If you can meet these criteria, you can probably get the loan you want. I just hope you only need it once.
Short term no loans obtained through payday loan stores and websites have gotten quite a bad rap over the last couple of years, but no one can deny that they fill a certain need in the market for people who need some fast cash and don’t have the income or the credit score that will stand up to much scrutiny. There are still plenty of people who need payday loans with no credit check.
You might wonder how a loan provider can afford to offer no credit check payday loans. Well, they clearly have to make sure their risk is covered, because it’s true that they can’t be lending money without a high expectation of having that money paid back. They cover most of their risk through the use of up front fees the borrower must pay before they walk out the door. So, when the borrower walks into the loan store and asks for a certain amount to be lent, the lender will usually ask them to pay a percentage of the loan up front – out of pocket, not from the proceeds of the loan. That percentage may be anywhere from 8% to 15% of the loan amount.
The lender’s risk equation looks something like this: if they lend 100 people $300, but charge all of those people $30 before they ever walk out of the loan store, that means they’ve lent $300,000 but already received $30,000. So they have $270,000 at risk. They know that a certain percentage of those borrowers will default, but in the end they know that enough people will in fact repay their debts in order to return their money to them and ensure a healthy profit. Some say it’s too healthy a profit, but that’s up for debate. I say it’s a fair transaction given the fact that these borrowers know exactly what contract they’re entering into.
And speaking of you, the borrower, be extremely careful in how you use these loans, because the fact is that a payday loan for $300 could end up costing you more than double that by the time you pay your fees and interest. So don’t fall into the trap of rounding up. If you need $225, don’t borrow $250. If you need $175, don’t borrow $200. It’s that kind of careless behavior that got you into this situation in the first place. Manage your money better and live debt free, without payday loans no credit checks.
