You may have heard about the so-called no closing cost no credit check loans, and maybe you’ve even considered taking one. Before you do that, it’s important to understand what you’re getting yourself into, and exactly what is involved in this type of loan.
No Closing Cost Doesn’t Mean No Cost At All
The loan, just like any other you take from a bank, will consist of a principal and an interest rate, and you’ll have to repay them in installments at certain due dates. The term “no closing cost” refers to the costs of the initial transaction. Usually, the bank charges some fees and commissions for all its transactions, such as the fee to be paid to the sales agent who brought you in, the fee for having your application evaluated, sometimes commissions on the initial down payment, and so on.
As the name implies, the no closing cost loan doesn’t carry all these fees, in the beginning. But that doesn’t mean you won’t have to pay them eventually, in one form or another. The lender still has to cover these costs, so they will be carried on into your interest rates. Therefore, the no cost closing loans typically have much higher monthly installment rates than regular loans.
While the no cost closing loan is not a bad option as such, it got a bad reputation because of its misleading name. In fact, it was considered such an obviously false name, that some states even banned its use in advertising. As with everything else, it’s worth considering whether this loan is suitable for you or not, and sometimes it may be a good idea to include it on the list of loans you may take – as long as you don’t let yourself fooled into thinking you won’t have to cover the closing costs at all.
Advantages and Disadvantages of No Closing Cost Loans
Odd as it may seem, it actually makes sense to take a no closing cost bad credit loans when the economic situation is bad, but with a reasonable forecast for improvement in the following years. It’s also a good idea when you have to take the loan for a very short period of time – for example, when you know you will have access to a large sum of money in the near future, and you will be able to repay the entire loan in advance.
This is the case because the no closing cost loans carry lower initial costs, so you won’t have to pay a lot on the first day of the deal. If you won’t have to carry the interest rates around for a long period of time, then it’s a good solution. For instance, if the current interest rates are very high, but you expect the situation to improve in the future, you may want to take this type of loan, and refinance it later.
The main problem, and one of the reasons why the no closing cost loans got such a bad reputation, is that they’re often used for mortgages, which have to be repaid over many years. If you don’t refinance this loan, and if you keep paying it for years and years, than you’ll end up with a very expensive credit, which will drain your budget considerably.