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

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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.

Need a student loan?

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

2 Important Disclosures for Earnest.

Earnest Disclosures

  1. Rates include 0.25% Auto Pay Discount
  2. Explanation of Rates “With Autopay” (APD)
    Rates shown include 0.25% APR discount when client agrees to make monthly principal and interest payments by automatic electronic payment. Use of autopay is not required to receive an Earnest loan.

    Available Terms
    For Cosigned loans – 5, 7, 10, 12, 15 years. 
    Primary Only – 10, 12, 15 years

    In school deferred payment is not available in AL, AZ, CA, FL, MA, MD, MI, ND, NY, PA, and WA).

3 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 7/1/2019. Variable interest 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. The interest rate ranges represent the lowest 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 click https://www.discover.com/student-loans/interest-rates.html
    for more information about interest rates

5 Important Disclosures for CommonBond.

CommonBond Disclosures

A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.

Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.

Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
If you are unable to pay your government loan, the government can refer your loan to a collection agency or sue you for the unpaid amount. In addition, the government has special powers to collect the loan, such as taking your tax refund and applying it to your loan balance.

A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If you refinance your government loan, your new lender will use the proceeds of your new loan to pay off your government loan. Private student loan lenders do not have to honor any of the benefits that apply to government loans. Because your government loan will be gone after refinancing, you will lose any benefits that apply to that loan. If you are an active-duty service member, your new loan will not be eligible for service member benefits. Most importantly, once you refinance your government loan, you will not able to reinstate your government loan if you become dissatisfied with the terms of your private student loan.

If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you are a borrower with a secure job, emergency savings, strong credit and are unlikely to need any of the options available to distressed borrowers of government loans, a refinance of your government loans into a private student loan may be attractive to you. You should consider the costs and benefits of refinancing carefully before you refinance.

If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.

Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.

6 Important Disclosures for PNC.

PNC Disclosures

  1. Annual Percentage Rates (APRs): APRs from 4.52% to 11.11% are for the fully deferred repayment option, include the 0.50% interest rate discount for automatic payment and encompass the full range of APRs for the three repayment term options (5, 10 and 15 year). APRs within this range may vary based on the repayment term chosen. See break down of APR ranges by repayment terms below.
  2. Fixed Annual Percentage Rates (APRs): APRs range from 4.52% to 9.58% for a 5-year term. APRs range from 5.05% to 10.26% for a 10-year term. APRs range from 5.55% to 10.84% for a 15-year term. Fixed rates are based on the creditworthiness of the borrower and co-signer, if any. Loan Payment Example: The monthly payment per $10,000 borrowed at a fixed rate range of 5.05% APR to 10.26% APR for 10 years means you would make 120 payments which may range from $131.94 to $207.24. For the fixed rate loan, the monthly payment will remain fixed for the term of the loan. Payments may vary for other repayment term options.

    Variable Annual Percentage Rates (APRs): APRs range from 4.90% to 9.92% for a 5-year term. APRs range from 5.38% to 10.57% for a 10-year term. APRs range from 5.85% to 11.11% for a 15-year term. Variable rates are based on the London Interbank Offered Rate (LIBOR) index plus a margin depending on the creditworthiness of the borrower and co-signer, if any. The LIBOR index, adjusted quarterly, is equal to the average of the one-month LIBOR rates as published in the “Money Rates” section of the Wall Street Journal on the first business day of each of the three (3) calendar months immediately preceding each quarterly adjustment date. The LIBOR index is currently 2.47%. If the index increases or decreases, your rate will increase or decrease accordingly. Loan Payment Example: The monthly payment per $10,000 borrowed at a variable rate range of 5.38% APR to 10.57% APR for 10 years means you would make 120 payments which may range from $135.93 to $212.65. For the variable rate loan, the monthly payment may increase or decrease if the interest rate increases or decreases. Payments may vary for other repayment term options.

    APRs and loan payment examples are for the fully deferred repayment option for the Undergraduate & Graduate loan programs and include the 0.50% interest rate discount for automatic payments. The lowest APR is available to well qualified applicants. Your actual APR will be based on your credit qualifications, selection of fixed or variable rate option, loan program, repayment term, repayment option and whether you elect the automatic payment feature. Loan payment examples assume 30 days to first payment after the deferment period (45 months in school and 6 month grace period). Payments vary for other rates, repayment terms and repayment options.

    In addition to Undergraduate and Graduate loans, PNC offers loans for Health & Medical Professions, Health Professions Residency and Bar Study. Rates may vary by loan program and are subject to change at any time. Visit pnconcampus.com for current rates, additional loan payment examples and more details about the Solution loan products.

  3. Automatic Payment Discount: During repayment, an interest rate discount of 0.50% is available for automatic payments. Borrower must be making scheduled payments that include both principal and interest. Interest only payments do not qualify for the 0.50% interest rate discount. Automatic payment can be established through the loan servicer American Education Services (AES). Advertised rates include the 0.50% automatic payment interest rate discount. The rate discount will be applied at the time automatic payment is established. If automatic payment is not established, the available rates will be 0.50% higher than the advertised rates. If automatic payment is established and discontinued at any time during repayment, the borrower will no longer receive an automatic payment discount and the rate will increase by 0.50%. Discount may also be suspended during periods of forbearance or deferment. Payments may be made from a checking or savings account. A federal regulation limits the number of transfers that may be made from a savings or money market account. Please contact your financial institution for more information on transfer limitations on savings accounts.
  4. Repayment Options: Immediate, interest only payments while in school and full deferment of principal and interest options available. Interest will continue to accrue during periods of deferment. You will receive quarterly interest statements during this deferment period. Paying the interest as it accrues each quarter will save you money over the repayment term of the loan because any accrued interest that you do not pay will be added to the principal balance at the end of the deferment.
  5. Co-Signer Release: A request to release a co-signer requires that, as of the date of the request, you have made at least forty-eight (48) consecutive timely payments of principal and interest with no periods of forbearance or deferment within the forty-eight (48) month timeframe. “Timely payment” means each payment is made no later than the 15th day after the scheduled due date of the payment. “Consecutive payment” means the minimum monthly payment must be made for the most recent forty-eight (48) months straight without any interruption. To qualify for a co-signer release, the borrower must submit a request, meet the consecutive, timely payment requirements, provide proof of income and pass a credit check.
  6. Tax Deductibility: Interest may be tax deductible. Consult a tax advisor.

Please note: PNC reserves the right to modify or discontinue the terms of these program at any time without notice. You are encouraged to explore all scholarship, grant and federal borrowing options before applying for a private loan. Private loans are subject to credit approval.

PNC is a registered service mark of The PNC Financial Services Group, Inc.
© 2019 The PNC Financial Services Group, Inc. All rights reserved. PNC Bank, National Association.

3.98% – 11.35%*,1Undergraduate and Graduate

Visit SallieMae

3.99% – 11.44%2Undergraduate and Graduate

Visit Earnest

Undergraduate, Graduate, and Parents

Visit College Ave

Undergraduate and Graduate

Visit Discover

3.66% – 9.64%5Undergraduate and Graduate

Visit CommonBond

4.90% – 11.11%6Undergraduate and Graduate

Visit PNC

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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