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What Are Courtesy Loans?
If you’re facing a financial emergency, you may not have the time available to go through a traditional loan process. In these situations, courtesy loans may provide a viable solution to your financial woes. These loans are especially helpful for borrowers with credit issues or those who may not be approved through the standard loan processes.
What is a courtesy loan?
Courtesy loans are short-term loans that require very little documentation of income or creditworthiness. As a “courtesy” to customers, the application process is designed to be fast and simple, so many courtesy loans can be approved and funded in the same day. Different lenders have different requirements for courtesy loans, and some lenders may instead refer to these types of loans as quick loans, short-term loans, cash loans or payday loans.
What you need to know about courtesy loans
Not all courtesy loans are the same. Some lenders take advantage of borrowers in desperate financial situations by providing quick, easy money at extremely high interest rates. Other lenders will advertise “no-hassle” loan applications and same-day funding, but borrowers with low credit ratings may be put through additional application steps after a soft credit pull.
After taking out a courtesy loan, you may receive frequent offers to renew your loan and get cash back, essentially restarting the repayment clock on your loan and giving the lender additional time to earn interest on your loan. If your payment history is good, expect to receive frequent loan offers advertising easy cash for home improvement projects, vacation funds, holiday planning or other suggestions for using loan proceeds to spend money.
While these loans can provide a financial lifeline for people with damaged credit, borrowers without a solid repayment plan can easily get hooked into a renewable loan cycle that becomes extremely challenging to eliminate the debt completely. As with any loan, borrowers should carefully understand the repayment terms and interest rates to make sure they can repay the debt faithfully and avoid unnecessary fees and interest.
How to apply for a courtesy loan
The application process for a courtesy loan will vary based on the lender, but most courtesy loan applications begin with a simple online or in-person application process. Borrowers will submit basic identification and contact information, reported income and requested loan amount. Some lenders will use a soft credit pull that processes in just a few seconds, while other lenders will rely on income verification and personal references to approve the loan.
Most courtesy lenders will require two recent paycheck stubs and several personal references as part of the approval process. As long as the borrower can provide the required documentation and doesn’t have disastrous credit issues, many courtesy lenders can approve and process a courtesy loan within a few minutes at the time of application. Online lenders will typically direct deposit funds within 24 hours, while an in-person lender will likely print off a check immediately upon receiving signatures on the loan approval paperwork.
Pros and cons of courtesy loans
Courtesy loans are one of many lending options available to meet short-term financial needs. To determine if courtesy loans are right for your situation, consider these pros and cons.
- Poor credit borrowers still eligible: Since many courtesy loans don’t require credit checks to be approved, borrowers with credit challenges and verifiable income can still receive financing approval.
- Extremely fast processing times: With some lenders, the entire loan processing time — from initial application to cash in hand — can take less than an hour.
- No credit checks in some cases: Even if your credit is decent, you may not want a credit pull to show up on your credit history. Some lenders don’t require any credit checks, giving you peace of mind that your credit will not be dinged for simply applying for a loan.
- Can help build credit: Not all courtesy lenders report to credit bureaus, but if your lender does, making regular on-time payments can help to rebuild damaged credit history.
- Interest rates can be high: Since many courtesy lenders don’t perform credit checks, they often minimize risk by charging higher interest rates. Lenders are required by law to disclose interest rates to borrowers, so be sure to look over the final paperwork and understand your interest charges before signing.
- Lenders encourage unnecessary loans: If you are an ideal borrower and make on-time payments, courtesy lenders are thrilled to have your business. They may call or mail you unprompted loan offers and may even mail you legal checks — cashing these checks is tantamount to accepting a loan offer, so think carefully before accepting one.
Alternative financing options
Although courtesy loans can be appealing for their fast and easy turnaround, these loans aren’t ideal in every situation. Depending on your cash flow needs, you may want to consider one of these alternative financing options:
- Get a traditional personal loan: If you dismissed a personal loan as a solution to your cash flow needs due to credit issues, you may want to reconsider. Not all personal loans require exceptional credit, especially if you have a prior relationship with the lender. Check with a bank or credit union where you already have an account and they may be willing to relax their credit score requirements.
- Borrow from friends or family: A private loan directly from a friend or family member who has extra funds can help you take care of your finances without an application process, and you may even be able to negotiate an interest-free loan.
- Finance with credit cards: If you have available credit on a credit card, using it to meet your financing needs can be a smart financial move with a plan to repay it quickly. Many credit cards offer travel points or other cash-back rewards that can lower the cost of this financing option. Just make sure to stick to an aggressive repayment plan to avoid excessive interest charges — expect to pay 18% – 26% for financing through credit cards.
- Use collateral: If you’re considering a courtesy loan due to credit issues, offering to add some collateral to secure a traditional loan can help speed up the approval process. Not every bank offers collateral loans, but those who do will generally provide higher loan amounts and longer repayment terms at lower interest rates than many courtesy lenders.