Credit in the United States is integral to the development of the consumer economy. Put simply, credit allows you to borrow money or acquire goods and services with a mutual understanding that you will pay down the road. 

Brief Credit Overview…

When attempting to purchase goods or services using credit, a lender of the loan will typically run a credit check. This allows them a transparent view of your financial history regarding current and past credit. These lenders can also look at your past payment history and overall spending to assess how risky you are as a borrower.

Having a lack of credit can make acquiring a loan extremely difficult. Should a lender run a credit check and see virtually nothing in a potential borrower’s history, it may set off red flags. 

Yet, in a study, the Consumer Financial Protection Bureau listed 26 million Americans, roughly one in ten, as being “credit invisible” and without any credit record. An additional 19 million Americans have an out-of-date credit record due to a lack of history associated with their accounts.

So, when these millions of Americans badly require a loan, how are they supposed to get the money they need? 

There are a couple of commonly pursued options.

No Credit Check Loans

As the name implies, a no credit check loan does not require a deep examination of one’s past and present financials. Factors such as your income or collateral go into determining whether or not a potential borrower receives a loan, rather than their credit history.

Unfortunately, no credit check loans often lead to predatory lending which places abusive loan stipulations on a borrower. 

There are reputable banks that offer non-predatory, no credit check loans, but they are harder to secure. Due to this, a large number of people rely on four common sources for their no credit check loans:

Payday Lender

Small sums of money are provided to a borrower, with extremely high interest, that must be paid back with the next paycheck. 

Pawn Shop

Very high interest puts a borrower at risk of losing the property if one is unable to pay back the loan.

Auto Title Lender

A lending option with extremely high interest where a potential borrower’s vehicle is used as collateral. 

Relatives and Friends

May not be any interest attached but a failure to pay back friends or family can cause long-lasting relationship problems or even legal issues. 

Of the above no credit check loans, a majority of Americans rely on payday lenders. 

Payday Lenders are the Worst

Roughly 12 million Americans with poor credit and very little savings rely upon payday loans to get quick cash. Payday lenders do not feel a need to perform a credit check because of how their loaning process works.

Funds may be released to an account upon the approval of the loan, but a borrower is required to write a post-dated check for the loan amount and interest on the spot. To the millions of Americans strapped for cash, the ability to get a quick sum of money is invaluable. 

So invaluable that the implications of high-interest rates (sometimes over 500%) and upfront payments are often overlooked…

Are there safe, no credit check loans? 

The alternative option for securing a loan is through your employer with an employer-sponsored loan program. Considering the many millions of Americans relying on predatory loans to get cash for necessary expenses, it is incredibly important that organizations support the financial wellbeing of their employees during hard times. 

According to the Coalition for Safe Loan Alternatives, when trying to find an employer-sponsored loan program, there are a few ideal considerations to take into account. 

• Is a credit score required? If credit scores are used, you may not be solving the problem for the most vulnerable in your workforce.
• Who is actually lending the money? If the loans are not made by a credible bank or credit union, you may be reinforcing a cultural dependence on consumer finance lending at high rates and limited consumer protections.
• Are all employees eligible for the same loan terms? If the loan program charges higher rates to the employees who need help the most, you may be benefiting your highest compensated employees at the expense of your lowest compensated employees, leaving them to continue to struggle.
• Are the loan terms clear and easy to understand? If the loan is not discussed with an APR (all-inclusive fees and interest), it won’t allow employees to make apples-to-apples comparisons and understand their loan.
• What’s the loan repayment process like? It is also best to look for programs with automatic payroll deductions so that the money is never seen, never missed.
• Are payments reported to all 3 credit bureaus? For those without a credit score, this is highly important to give access to safe and fair lending through other channels in the future.

Unforeseen expenses arising from medical costs, overdue bills, auto, and home repairs, or supplemental income are all extremely common. Many employees feel uncomfortable discussing bad credit so they may turn to payday lenders, crippling their long-term financial well-being.

By providing an employer-sponsored loan program such as TrueConnect, which does not require a credit check, you can make a positive impact on your employees’ financial wellbeing.