Why No-Credit or ‘Instant’ Student Loans Should Be Your Last Resort

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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It can take a long time for you to get your student aid money. On average, three to four weeks can pass between applying and actually receiving the money, according to College Ave. And federal loan borrowers might have to wait for 30 days after the first day of classes for their funds to be disbursed, according to the Federal Student Aid website.

That type of delay is one reason why some pursue “instant” student loans. These could hit your checking account within one business day. Sounds pretty legit, right?

But wait.

These instant student loans are often personal loans disguised as student aid. They come with higher interest rates and less reliance on your credit history. Here’s why you should be wary of instant student loans — and four ways to avoid them altogether.

What do instant student loans entail?

Cue the cliche car dealership commercial that promises you a great deal: “No money down, no payments for six months.” Now imagine it’s a promotion for a student loan.

But you don’t have to imagine — there are lenders that make these type of “instant student loan” promises to borrowers hoping to fulfill the dream of attending college or graduate school. Applications like the one below will request your income, bank information, and amount of property ownership.

Image source: BadCreditLoans.com

But here’s the catch: In exchange for fast approval and payout, the loans typically come with high APRs. One middleman loan company has fixed APRs ranging from 5.99% to 35.99%. By comparison, more reputable lenders have rates spanning 2.93% and 11.85%.

“Remember, the amount is paid back much more quickly than a regular loan, so the interest isn’t given a chance to ever stack up,” warned one site, Bad Credit Loans. “We also keep our qualification requirements simple enough to allow almost anyone to qualify, even applicants who would most likely not be approved elsewhere.”

Why you should avoid instant student loans

The problem here is that a sped-up repayment schedule is typically not a solution for least-qualified borrowers.

Federal student loans default to a 10-year, standard repayment plan. Private loans from reputable lenders offer terms as short as five or seven years with flexible repayment options (like in-school deferment).

A $5,000 personal loan disguised as an instant student loan, though, might need to be repaid within three years. That’s before you have a chance to graduate, enter the workforce, or increase your income. Depending upon the loan agreement, you might even be required to make payments immediately.

That means a minimum payment could be much higher than that of a federal or standard private loan.

Other problems with instant student loans

There are other potential dangers to instant student loans, too, such as being matched with a lender that doesn’t offer repayment protections if you run into financial trouble. Options like unemployment support, deferment, and forbearance might not be available.

It’s important to consider any lack of protections when evaluating a no-credit or bad-credit loan offer because the math can turn red quickly. Missing a payment on a loan with a 5.00% APR is not the same thing as missing one tied to a 20.00% APR.

A higher interest rate will cost you more, even on a shorter-term loan. For example, missing two payments on a $5,000 loan with a 20% interest rate could cost an extra $225 — and that’s before late fees. That’s why it’s important to read through any loan offer for details on the interest capitalization the penalties for not making timely payments.

4 alternatives to instant student loans

If you have a limited or poor credit history, acquiring debt on your own likely isn’t the best option. Fortunately, it’s not your only option.

Before taking out an instant student loan with unattractive rates and terms, consult your school’s financial aid office. It might be able to point you in the direction of other funding sources or perhaps dig into its own pile of emergency loan funds.

Beyond that, here are four more strategies to help you avoid unfriendly loan terms.

1. Scrape together scholarships and grants

The best kind of financial help is gift aid. It doesn’t need to be paid back, although it does need to be earned in some cases.

If you’re considering bad-credit loans, you’ve probably already scraped the bottom of the barrel for scholarships and grants. But have you looked under the barrel? You can download some free scholarship tools that might help you discover what you previously missed. You might even be eligible for our Student Loan Hero scholarship.

2. Pick up a side gig

Instant student loans marketed to borrowers with little to no credit history typically don’t distribute loans larger than $1,000. The good news is there are better ways to come up with that amount of money.

If you have a tuition payment that’s due in a few months — or can convince your school to push it back — consider part-time work. College students are prime candidates for part-time opportunities in between classes. You can also earn extra money using your existing skills.

3. Maximize your federal loans

Most federal student loans don’t require a credit history or a co-signer, and come with generous repayment protections and plans — that’s why they’re desirable. But it’s possible the federal government didn’t award you the maximum amount you’re eligible for.

This could occur, for example, when the Expected Family Contribution (EFC) listed on your college award letter is inaccurate. Say your FAFSA spits out an EFC of $7,500, leading your school to award you $2,000 in Direct Unsubsidized Loans.

Now, say you and your parents can only afford $4,000 (not $7,500) to pay for your freshman year. That $3,500 shortfall could be fulfilled by maxing out your federal loan allowance.

Maximizing your federal loan allowance isn’t always simple. You might need to appeal your initial loan amount on your college award letter or provide evidence of extenuating circumstances, such as illness or job loss.

Ask your school’s financial aid office as early as possible about bringing you up to the maximum allotment. You might need to put your request in writing, though, particularly if you’re trying to max out need-based borrowing options.

4. Add a co-signer to a private loan

If you’re considering unattractive rate offers from suspect lenders, you probably need money now — you don’t have time to build up your credit score.

If you want to qualify for a better private loan immediately, one shortcut is to find a co-signer with good credit history. Leverage a relative’s creditworthy profile to secure a lower rate from a reputable lender that offers more federal-like advantages.

Taking this route still keeps your name on the loan, allowing you to build up your credit history. Plus, once you’ve made a few years of timely payments, you might even be able to release your co-signer.

Find a better lender

So here’s the ugly truth about instant student loans: If the lender doesn’t require as much of you, you’re probably getting a bad deal. (Or at least not as good of a deal as you’d get elsewhere.)

So, before resorting to a less desirable loan because it’s quicker, do your homework. See what it takes to qualify for a more affordable loan from a reliable lender. Putting in a little time now can save you big bucks later.

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Here are our top student loan lenders of 2019!
LenderVariable APREligibility 
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

(1)All rates shown include the auto-pay discount.  The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.

Information advertised valid as of 9/3/2019. Variable interest rates may increase after consummation.


2 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

3 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).

  1.  Rates are as of July 1, 2019 and include auto-pay discount. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment. Variable rates may increase after consummation.

4 Important Disclosures for Discover.

Discover Disclosures

  1. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.
  2. View Auto Reward Debit Reward Terms and Conditions at DiscoverStudentLoans.com/AutoDebitReward.
  3. Aggregate loan limits apply.
  4. Lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. The interest rate ranges represent the lowest interest rate offered on the Discover Undergraduate Loan and highest interest rates offered on Discover student loans, including Undergraduate, Graduate, Health Professions, Law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable Margin percentage. The margin is based on your credit evaluation at the time of application and does not change. For variable interest rate loans, the 3-Month LIBOR is 2.50% as of July 1, 2019. Discover Student Loans will adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Please visit discover.com/student-loans/interest-rates for more information about interest rates.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.

5 Important Disclosures for Citizens.

Citizens Disclosures

  1. Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of September 1, 2019, the one-month LIBOR rate is 2.14%. Variable interest rates range from 3.24% – 11.50% (3.24% – 11.35% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.
  2. Citizens Bank Student Loan Eligibility: Borrowers must be enrolled at least half-time in a degree-granting program at an eligible institution. Borrowers must be a U.S. citizen or permanent resident or an international borrower/eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For borrowers who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank- participating school. 

    Please Note: International Students are not eligible for the multi-year approval feature.

  3. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply. Borrowers whose loans were funded prior to reaching the age of majority may not be eligible for co-signer release. Note: co-signer release is not available on the Student Loan for Parents or Education Refinance Loan for Parents.
3.70%
11.98%
1
Undergraduate, Graduate, and Parents

Visit College Ave

3.25% – 10.65%*,2Undergraduate and Graduate

Visit SallieMae

3.52% – 9.50%3Undergraduate and Graduate

Visit CommonBond

3.37%
11.87%
4
Undergraduate and Graduate

Visit Discover

3.24% – 11.50%5Undergraduate and Graduate

VISIT CITIZENS

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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