Why Are Credit Checks Necessary for Text Loans from Direct Lenders?

When you need urgent money to fund your needs, you explore available sources. You may call out your friend or brother, explore existing savings or ask a roommate for help. What if none of these work on the day you need money? If you want one to charge the mobile plan, things get worse. It is because you cannot get cash online without an active internet plan. Things like these get on the nerves, and one panics.

In this situation, having access to some immediate facilities like text loans can save you. You can access this without active internet connectivity. Sounds interesting? Yes, you can. These loans, as the name suggests, work thoroughly on SMS. You can text the company for the loan, and you can apply via text message. You get the cash deposited in your respective bank account by following one.

However, these loans are easy to tap for small requirements, and most individuals fear rejection. Why? It is because of detailed credit checks that reveal the mark on the credit report.

Well, the fear is genuine, as losing a credit score impacts credit improvement. However, credit checks are necessary. It helps determine the person’s affordability. You do not need to be afraid of that.

However, the blog discusses the reasons regarding the importance of credit checks in text loans.

What do text loans imply?

Text loans are for emergencies where you need money immediately. It could be any need like- having a medical appointment, credit card payment, car repair, mobile recharge, etc.  Individuals finding it hard to follow online instructions get delayed in getting help. Moreover, one cannot access some facilities without good connectivity. 

It is the reason individuals prefer text loans that are based on texts. It works just like a payday loan, where you get cash depending on your income and affordability. You get immediate loan approval by providing legal income proof. 

Why are credit checks necessary for small loans like text loans?  

According to FCA guidelines, “Every direct lender must conduct a responsible credit check on every loan applicant.” Therefore, it is unlikely to spot any lender that offers a loan without basic checks.  It threatens your credit profile and you may default if you get a loan. Here are other reasons why legal and responsible direct lenders conduct a detailed check before approving a loan:

1)     To identify the amount you can afford

No legal lender will provide you the amount to ask for just like that. He will analyse the potential to pay back the amount with interest rates comfortably. If you cannot afford it, he may deny the approval.

Additionally, he determines affordability by checking several factors like- income, recent payment history, the amount you need, and recent debts. It helps him decide whether you can pay the loan back. If you qualify for the check, he provides you only the amount you can pay. It may be lower than what you need, but that’s the amount you may legally qualify for.

2)     Help the borrower avoid default

When you apply for text loans from direct lenders that suit your finances, you know the amount you want. However, as mentioned above, you may not get the desired amount. It indirectly helps you avoid a default that may sincerely hit your credit score.

It is because borrowing an amount you can barely afford means missing payments and this phenomenon ultimately leads to loan default. Moreover, the impact will be high as text loans have competitive interest rates.

3)     Help set reasonable repayment tenure

Without credit checks, one cannot know the amount you can dedicate towards the loan as a monthly payment. Choosing a random amount may lead to unfavourable consequences later.

 For example, you apply for £1200 as text loans for 4 months, but your income permits at least 6 months of repayment. What will happen? You cannot make payments within the agreed date, and the loan enters default. Next, the lender may issue a CCJ against you to retrieve the loss and it may further impact your credit score.

Therefore, every lender conducts a basic credit check to analyse the liabilities or bills you pay monthly in contrast to income. Accordingly, he decides the repayments and repayment terms you can comfortably pay the loan within.

4)     It helps the borrower make an informed decision

It is helpful from the lender’s perspective and the borrower’s. When you know the amount you can afford, the repayments you can realistically make and the term you can pay the loan within, you can decide whether to proceed.

However, it may not be possible to calculate without a credit check. In that case, you may randomly decide to take the loan and regret it later. You may even enter the debt trap. The condition gets worse in that case.

5)     To analyse theft, risk or fraud

It is one of the important reasons that lenders conduct credit checks. It safeguards their interest and limits vulnerabilities to security breaches.

Risky credit profiles with a history of fraud, bankruptcy, insolvency, or theft are a threat to lenders. Thus, lenders gauge the authenticity of the borrower with a credit analysis.

He also demands an ID and income proof before providing the loan to support this search. It helps him ensure clarity of a person’s identity and prevent theft.

However, with the firms holding crucial customer details, lenders ensure encryption for customer safety.

These are some potential reasons lenders conduct credit checks before providing any loan. Whether you need a text loan or a mortgage, a basic check forms the base.

What If I find a guaranteed loan without credit checks?

If someone promises you to provide a guaranteed loan without credit and income checks, avoid it. You may be dealing with private loan sharks in the UK marketplace. It is a bait for customers. You may find unbelievable and exciting loan rates and terms.

For example, they may not ask for any proof before providing loan approval. However, it may prove risky later. They increase the interest rates and may demand more than you owe. Non-repayment may lead to life-threatening situations. Thus, always enquire about the authenticity of the lender by:

  • Checking its online presence
  • Analyse whether the address exists
  • Call the number mentioned
  • Check for spelling and Google the name
  • Does the domain seem inappropriate? Close it immediately.

It will help you safeguard your personal and financial interests.

Bottom line Credit checks are necessary for text loans. It helps the lender know about your affordability, income, recent credit behaviour and the amount you can comfortably afford. It helps avoid any impending credit insecurity and panic later. It is because you only get what you can comfortably afford. No credit checks or minimal credit checks help determine the affordability. It safeguards both lenders’ and borrowers’ interests.

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