If you get a live check in the mail, it may be tempting to think you were the lucky recipient of free money. A live check is not a gift, however—it’s a personal loan that you’ll have to pay back, with interest. If you cash a live check, you’re entering into a loan agreement with whoever sent it to your address.
What Is a Live Check?
A live check is an unsolicited personal loan offer that’s sent to prequalified individuals through the mail. Some lenders send out live checks to drum up business or gain customers that meet their loan requirements.
Live check mailings are especially popular during high-spending seasons, such as around the holidays, when consumers might need extra cash. Since the loan has already been preapproved, all you need to do is sign the back of the check to deposit the loan into your bank account.
But remember, just because you can cash a live check, that doesn’t necessarily mean you should.
How Do Live Checks Work?
Live checks are sent directly to consumers through the mail. If you sign the check and cash it into your bank account, you’re entering into a loan agreement with the lender.
Not only will you have to pay the money back, but you’ll also be charged interest on the amount. Some live check loan offers may also come with fees, such as an origination fee.
If you’re considering cashing the check, review the loan agreement carefully first. If the terms are unreasonable, you can simply rip up the check and throw it away.
Should You Sign and Cash a Live Check?
Before accepting a live check, take some time to consider the offer. First, think about whether you need to borrow a loan in the first place. Since the loan was unsolicited, you may not be in the market to borrow money. In this case, there’s no reason to take on personal loan debt.
If you’re in need of extra cash, perhaps to cover a big expense or consolidate debt, make sure the live check came from a reputable lender. Find out if the lender is licensed in your state, and check the Consumer Financial Protection Bureau (CFPB) for any complaints against it.
If the lender is legitimate, your next step is to review the terms and conditions of the loan. Look over the loan’s monthly payment, interest rate, repayment term and any fees. If the rates and terms are reasonable—and the monthly payment would work for your budget—it could make sense to sign and cash the live check.
That said, live checks may have much higher rates than other loans, and it’s always a good idea to shop around with multiple lenders before deciding on a loan. You might find a bank, credit union or online lender that can give you a better offer.
Pros of Live Checks
- Easy and convenient: Live checks come directly to you. All you need to do is sign the check and deposit it into your account.
- Get the funds right away: You’ll be able to access the funds as soon as the deposit clears in your bank account.
- Don’t need to go through a loan application process: Since live checks are unsolicited, they don’t require you to fill out a loan application.
Cons of Live Checks
- Can be misleading: Live checks are often presented as a reward and may make you feel like you won something. But they’re not free money, just personal loans that you’ll have to pay back with interest. There’s zero obligation to cash a live check. In fact, in many cases, it makes sense to simply throw it out.
May come with high rates and fees: Some live checks come with high interest rates and fees that will cost you a lot over time and could trap you with burdensome debt. - Loan amount might be too low or too high: Since you didn’t request the loan, the amount on the live check may not match what you actually need.
- Could find a better offer elsewhere: Rather than accepting an unsolicited loan, take some time to compare loan offers from multiple lenders. Many let you prequalify for a loan online, so you can check your rates without impacting your credit. Shopping around can help you find the most affordable loan.
- Have a risk of identity theft: If you throw out a live check without ripping it up, it’s possible someone could find it and cash it. The CFPB warns that live checks can lead to identity theft. Some scammers also send fake loan offers to get your personal or financial information.
Alternatives to Live Checks
If you’ve received a live check with unappealing terms but still need a loan, here are a few alternatives to consider:
1. Personal Loan
Rather than depositing a live check, you can apply for a personal loan on your own from multiple lenders. Many lenders let you prequalify online, so you can shop around without harming your credit.
Personal loans may range anywhere from $1,000 to $50,000; some lenders let you borrow up to $100,000. They typically come with repayment terms between one and seven years and interest rates between 6% and 36%.
You can use a personal loan for almost any purpose, including home renovation, debt consolidation, medical bills, wedding costs and other expenses. Borrowers with the best credit will qualify for the most competitive rates.
2. Payday Alternative Loan
If you have less-than-stellar credit, you could consider a payday alternative loan (PAL) from a credit union. PALs have less stringent credit requirements than some personal loans, but they max out at $2,000.
There are two types of PALs, both of which have a maximum annual percentage rate (APR) of 28%:
- PAL I: Loan between $200 and $1,000 with repayment terms between one and six months.
- PAL II: Loans up to $2,000 with repayment terms between one and 12 months.
Since PALs are issued by credit unions, you may have to become a member to borrow one. Some credit unions require that you have a specific affiliation to join, whereas others are open to anyone. Joining typically entails opening a checking account and making a small deposit.
3. Credit Card
Credit cards are another option if you need extra spending money. You can spend up to your credit limit and reuse your credit line as you repay your balance. If you pay off your balance in full each month, you won’t have to pay interest on the charges.
Carrying a balance over from month to month, however, will incur interest charges. The average credit card interest rate is nearly 24%. Be careful not to take on too much credit card debt, since its high interest charges make it notoriously difficult to pay off.
If you have strong credit, you may be able to qualify for a credit card with a 0% APR introductory period. Some cards offer 0% APR for anywhere from 12 to 21 months. If you pay off your balance within this time period, you won’t have to pay any interest on it. Any unpaid balances, however, will be charged with the card’s normal interest rate after the introductory period expires.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
