No paperwork. No days of waiting. This is exactly what comes with no credit check mobile app loans. These short-term loans offered in the comfort of your phone come with a convenience that is hard to resist. However, what advantages and disadvantages come with these attractive loans?
In this article, we will dissect these mobile app loans, looking at the types, the pros and cons, when to consider them, their alternatives, and the tips to manage them.
Let’s have a deeper look at if these mobile app loans are truly the right fit for you.
Types of Mobile App Loans
Various types of no-credit-check mobile app loans include:
- Payday loans: These are short-term loans designed to help borrowers cover their immediate expenses until they receive their next paycheck. Examples include the Tala and Branch apps with repayment terms ranging from 4 to 6 weeks.
- Personal loans: These are longer-term loans than payday loans, which look at your basic financial history such as m-pesa (mobile money) transactions history. An example is the Zenka app with a repayment period of 61 to 90 days.
- Peer-to-peer loans: These connect borrowers directly to individual lenders, ensuring both parties meet their obligations. An example is the Pezesha app enabling access to funds without going through formal banks.
- Asset-backed loans: These require a borrower to offer security for the loan such as a car logbook or a household item. With M-Kopa as an example, they pose the risk of losing the pledged asset.
- Buy now pay later loans: Lipa Later is the most popular example here that allows users to purchase products and then pay for them in installments over time.
Pros of Mobile App Loans
Here are some of the primary advantages that come with taking no credit check mobile app loans.
Quick and Convenient Approval
I am positive you have ever been in a situation where you needed ‘cash urgently’, meaning within minutes or hours. Mobile loan apps cater to this cash urgency, avoiding the time-consuming process that comes with traditional loans.
They do not involve lengthy documentation reviews and verification processes. Instead, lenders make use of alternative data points such as your M-Pesa (mobile money) transaction history or even social media profiles to assess your creditworthiness.
The entire process requires you to download the loan app, fill in your basic personal information, and submit your request. These are then verified almost instantly and disbursement is done immediately, eliminating any unnecessary delays.
Minimal Processing Requirements
When faced with an emergency, you do not have time to fill out extensive paperwork or undergo cumbersome verification processes as is the requirement with traditional loans.
Mobile app loans require minimal documentation, including your national identity card, phone number, and your M-Pesa (mobile money) transaction history.
The lack of credit score checks or proof of income makes the application process fast and accessible. Furthermore, you can apply for mobile app loans from anywhere at any time using just your smartphone. This makes it suitable for people in remote areas or with busy schedules.
No Credit History Required
The lack of a credit history requirement makes mobile app loans suitable for first-time borrowers, those with poor credit scores, and people outside the traditional banking system.
This means that if you are just starting your career or are operating a small business you can still access a loan unlike if you went to a bank.
The use of alternative mobile money transactions to evaluate a borrower means you will not require a credit score to get a loan.
Cons of Mobile App Loans
Despite their convenience and accessibility, mobile app loans come with some setbacks that you should consider before getting one.
High Interest Rates and Fees
Mobile app loans often come with very high interest rates and associated fees due to their unsecured nature. This means that the cost of borrowing becomes very expensive, especially for small loan amounts.
A Short Repayment Time-frame
Mobile app loans have very short repayment periods, usually ranging from 7 to 30 days. This can put a lot of pressure on a borrower to repay quickly, which does not always happen due to unexpected delays in cash flow. Failure to repay within this set window leads to penalties or even forced rollovers that further increase the total cost.
When to consider a No-Credit Check Mobile App Loan
These last-resort loan options can be helpful when you have no access to traditional loans. Here are some scenarios where no credit check mobile app loans might be suitable.
Urgent Financial Emergencies
We’ve all had some urgent financial emergencies such as medical bills or car repairs that required cash. An emergency fund would be ideal to sort these expenses. However, if you do not have one, mobile app loans can provide a quick and convenient solution, all in the comfort of your phone.
The immediate disbursement without lengthy credit approval processes makes these loans appealing when you need to sort time-sensitive expenses.
Unlike traditional banks or microfinance institutions that require you to fill out paperwork that could take days or even weeks, these apps disburse your funds immediately, often to your M-Pesa (mobile money) account. This fast and flexible solution is ideal when those urgent needs arise.
Also Read: Building an Emergency Fund on a Tight Budget
Cash Flow Issues
Temporary cash flow issues can occur when you experience some cash shortfalls such as when your income is delayed or when you face unexpected short-term expenses.
Expenses such as paying utilities and sorting school fees can disrupt your daily life, making it difficult to cover basic expenses like utility bills.
No credit check mobile loans allow instant access to cash, allowing you to sort those urgent but temporary payments. Furthermore, the short repayment periods align with the temporary nature of your financial need.
Build your Credit Score
Many mobile loan apps have their systems of tracking user behavior, and consistent on-time payments can help you improve your reputation on these platforms.
While they do not require credit scores for approval, they can help you build a positive lending record through responsible borrowing. This further improves your future access to larger loans and mortgages.
Also Read: 5 Proven Strategies to Elevate and Protect Your Credit Score
Alternatives to No-Credit Check Mobile App Loans
Having looked at the disadvantages of mobile app loans, here are some of the alternatives to these high-interest rate loans:
- Savings and Credit Co-operative Organizations: These will offer you loans based on your savings, meaning you will not need any credit score. Moreover, they are member-based meaning that they offer low interest rates on loans.
- Peer-to-Peer Lending: Platforms such as Zidisha allow you to borrow directly from other individuals at lower interest rates, bypassing traditional financial institutions.
- Family and friends: You could borrow from your family or friends at no or very low interest rates, making it more affordable than mobile check app loans.
- Salary Advances: This facility allows you as an employee to borrow a portion of your upcoming salary at minimal or non-existent interest rates. These are then deducted from your future paycheck.
Also Read: Saccos Unveiled: Your Guide to Smarter Savings
Tips for Managing Mobile App Loans
Here are some tips to help you manage your no-credit check mobile app loan when you acquire one:
- Borrow only what you need. Due to the high interest rates and short repayment periods that come with these loans, borrow only the amount you can realistically repay within the required timeframe.
- Create a repayment plan to ensure you repay the loan on time. This will prevent attracting penalties, higher interest rates on future loans, and blacklisting on Credit Reference Bureaus.
- Evaluate other loan alternatives such as the ones listed above. This will ensure you reduce your reliance on mobile app loans and provide you with more sustainable financial solutions.
- Monitor and manage your finances diligently to prevent future financial crises. This will ensure proper cash flow management of your savings and expenses.
Go On and Use your Mobile App Loan Wisely
Indeed, no credit check mobile app loans offer a convenient and fast solution for anyone needing quick cash without lengthy approval processes. However, the high interest rates, short repayment terms, and potential risks of over-reliance mean that you should exercise caution whenever you acquire them.
Before committing, it’s crucial to evaluate other alternatives like SACCOs, peer-to-peer lending, or salary advances, and ensure you borrow responsibly. By carefully managing your finances and considering all your options, you can make the most of these loans without falling into a debt cycle.
Remember, quick cash can be helpful, but smart borrowing will always be your best financial strategy. Always practice responsible borrowing and only borrow what you can afford to repay.
