No-credit-check loans are loans that are often marketed to people with bad credit or limited credit history. In many cases, approval is not actually guaranteed, and the lender might go ahead and check your credit anyway. Best used in financial emergencies, if at all, no-credit-check loans typically have unfavorable terms and very high interest rates.
Unfortunately, we can all fall victim to financial emergencies and need immediate access to cash. This could be something nonessential such as the wedding of your best friend in a foreign country. Or it might be something vital, such as medical care for your child. No matter the reason, we all come across unforeseen events that require immediate financial assistance.
If you have great credit, you probably have access to credit at decent interest rates. But that is not always the case. Some people have bad credit or no credit at all. In some cases, they might be willing to risk more for a loan with no credit check.
What is a no-credit-check loan?
Lenders usually perform a credit check to examine borrowers’ creditworthiness by scrutinizing the their credit repayment history, defaults, delayed payments, and other credit records. You probably won’t qualify for traditional loan products if you have a bad credit score and a history of delayed payments, defaults, and underuse of provided limits.
No credit-check loans are loans in which the lender claims they won’t check your credit with one of the main credit reporting agencies. These lenders will usually do some sort of credit check with a non-traditional alternative credit bureau to assess recent repayment history or your ability to repay. Some will focus their underwriting on whether you have gainful employment/income and can afford a loan payment.
How do no credit check loans work?
While no credit check lenders might not be checking the applicant’s credit report with one of the main three credit bureaus, they are generally still checking something. Applicants must provide personal information, including name, date of birth, address, employment/income verification, and bank details so the lender can make a decision on credit worthiness.
All online lenders will require banking details for loan disbursement. But subprime lenders offering ‘no credit check loans’ will usually need these details earlier in the underwriting process because they will check the bank account against alternative data bureaus to see the applicant’s history of overdrafts, bank account age, as well as the likelihood of fraud.
Once their alternative credit check and underwriting is complete, lenders will make a decision and if approved will disburse funds to qualifying borrowers.
Generally speaking, a lender that markets no-credit-check loans will offer relatively high interest rates and unfavorable loan terms.
Types of no-credit-check loans
No-credit-check loans are advertised everywhere. They may even say that they are able to “guarantee” your approval no matter what. No lender offers a 100% guarantee, so finding no credit check loans with guaranteed approval is virtually impossible. In many cases, they will go ahead and check your credit anyway to determine if you are credit worthy. Also, it’s possible to be rejected for a loan at all of these no-credit check lenders.
Nonetheless, some lenders are known for high approval rates and don’t perform hard credit checks for their loans. If you need a quick loan and have no credit or a poor credit score, this can be tempting. Here are some types of lenders that may claim to offer a “no-credit-check guaranteed-approval” loan, and what you need to know about them.
Payday loans are a popular form of loan that may claim no-credit-check approval and a quick turnaround. They are marketed as a payroll advance to a working person who needs money until they receive their next paycheck.
A payday loan is an unsecured loan underwritten primarily on your proof of employment. Lenders recoup the principal and interest from your next paycheck. Most payday loans come with a two-week window and involve minimal checks and steep interest rates. They suit borrowers with a guaranteed income in need of urgent and unplanned cash.
However, when you annualize the short term fee on these small dollar loans, the annualized interest rate can be very high. For example, according to the Center for Responsible Lending, a typical payday loan in the state of Texas has an interest rate of a whopping 664%. On the lower end, a typical payday loan in the state of Ohio has an APR of 138%. Considering that on a mortgage, the interest rate is typically around 5% APR, this is way above and beyond what is normal. Plus, if you can’t repay the loan, you could get trapped in a cycle of taking out more loans, month after month.
Personal installment loans
Personal installment loans offer lower APRs and longer repayment durations than payday loans.
Subprime lenders offering personal loans will typically have a loan size that ranges from $500-$5000. The borrowed amount is repaid over time (ranging from months to years), which reduces the monthly installment amount. A smaller payment and longer term can be more manageable since you don’t have to repay everything at once.
You might be able to get a personal loan from a bank, credit union or another lender. Best to apply and check, even if you have bad credit. SuperMoney’s loan offer engine makes it easy to get pre-qualified offers from multiple competing lenders through a single easy loan application.
Auto title loans
Auto title loans are installment loans that are secured by the title to your vehicle. The vehicle collateral eliminates the need to check credit information because lenders can recoup their debt by seizing the vehicle. Unsecured loans don’t require collateral and usually involve soft credit checks.
Be aware of the implications of auto loans that market themselves as “no credit needed” or “guaranteed approval.” In many cases, loans like this will have extremely high interest rates. Better to search for a normal auto loan with a competitive interest rate rather than choose one that markets itself as “guaranteed.”
No credit check loan requirements
In general, an individual with little or no credit history is a suitable loan applicant if they satisfy the following criteria:
- Are 18 years or above in age
- Have a permanent US address and are a US resident
- Can provide valid contact details, such as a mobile number
- Currently employed with a steady monthly income
- Own a bank account for the direct deposit of the loan
Why do lenders check credit?
Credit, to put it at its most fundamental meaning, is trust — the amount of trust a third party has in you that will you pay your debts back. A credit check is vital for lenders looking to avoid defaulters. They allow lenders to determine if you qualify for a loan product and what the terms should be. Borrowers with a good FICO credit score will get higher loan limits and lower interest. Those with average credit will get lower loans with increased interest.
If you have taken out personal loans, a bank loan, auto loans, or a mortgage, then you have built a certain amount of credit. Every loan you borrow, including student loans, credit cards debts, and house mortgages, is recorded. As a result, you’ll build a stronger credit score when you repay the loan as required by its terms.
Paying for everything on time will help your credit score grow and improve. However, if you fail to pay your bills on time, then this could have an adverse effect on your credit report that lasts for years. So what types of people would need no-credit-check loans? Typically there are two types.
People with bad credit
People who have a bad credit history often need bad-credit loans. They can have bad credit for any number of reasons. Often they meant to pay their bills but could not afford to do so because of unforeseen events.
Take the 2008 housing crisis, for example. Many people bought a property at the top of the market in 2006 and 2007 with the idea that the market would continue to go up. However, this came to a crashing halt during the mortgage crisis, and subsequently, values ended up falling by as much as 70% in some markets. Many homeowners lost their jobs and chose to have their homes foreclosed upon. This would have an incredibly adverse effect on their credit, which would make it difficult to get traditional loans.
If you have a score below 580, you may struggle to get any loan since traditional lenders recognize borrowers with bad credit as untrustworthy. However, you can still qualify for no credit check products.
People with no credit
Say you have an American passport, but you left the U.S. when you were 15 to move with your mother and stepfather to Australia. You finished high school in Australia, went to university in Australia, and later received a job offer back in the U.S. When you return to the U.S., you won’t have a credit history at all.
This is because, usually, credit is tracked from when you are 18 years old, at which time you were not in the country. In this case, no credit at all is just as bad as bad credit, and you might want to look into a personal loan for borrowers with no credit.
How to build your credit score
If you have a bad credit score or no credit at all, you need to start building it in a positive direction. That way you can avoid being limited to a no-credit-check loan. Here are some ways to build your credit.
Get a credit card
A credit card is the easiest way to build credit or start building credit. You can go to a financial institution and open up an account that will have a credit card option. You can also acquire one from a number of credit card companies.
If you have a poor credit score or no credit score, you typically can still get a secured credit card. These cards require a security deposit before you can receive one, which can make a big difference when improving your credit. This is the easiest way you can start building credit and work towards getting a loan.
Get an auto loan
If you have a poor credit score and can’t get a personal loan, then an auto loan is an easy way to go. This is because the loan is collateralized primarily by the automobile and is not considered an unsecured loan. If you have a decent car that you own in cash, you can use it as collateral for an auto loan. This will allow you to build your credit.
Alternatives to no-credit-check loans
No-credit-check loans are not the only ways to get money if you have bad credit. If you have a loan request and don’t know where to go, here are some other options to consider.
- Friends and family. Friends and family are a classic option for avoiding no-credit-check loans. Regardless of the relationship you have with your father, it’s likely his interest rate will be significantly lower than a no-credit-check loan.
- Buy now, pay later loans. Some companies offer the option to pay later or via an installment loan with no credit check. Be wary of these, too, as they can put you in a debt spiral, especially if you have multiple loans.
- Online lenders. Online lenders might offer some alternative options, such as cash advance loans or other short-term loans.
- Side hustles. Even if you’re short on time, there may be side jobs you can start right away or items you can sell so that you don’t have to borrow money.
Bottom line: Avoid no-credit-check loans with guaranteed approval
Unfortunately, an individual with a poor credit history is highly unlikely to qualify for low-interest unsecured loans. A no-credit-check loan with guaranteed approval should generally be avoided. This is because the loan terms and interest rate are typically well above average. Taking on this high interest debt really depends on the urgency of your financial needs.
If you have any other way to access money for your emergency, you should try other options. Furthermore, these loans are often not actually “guaranteed” and don’t have as much of a “no credit check” as you think they do.
Predatory loans and congressional action
One of the positive developments in government is the desire to reduce what are considered to be “predatory loans.” Predatory loans are loans with horrible terms and sky-high interest rates. They are typically given to lower-income people who may be more desperate for financing. Congress has addressed this with legislation, including the following:
- Equal Credit Opportunity Act (ECOA) – Enacted in 1974, this legislation was created to ban discrimination, such as offering you a higher interest rate based on race, sex, religion, age, or marital status. It was implemented due to the discrepancies given to people of different races and genders prior to its passing.
- Dodd-Frank Act – Passed in response to the financial crisis of 2008, the Dodd-Frank Act established the Consumer Financial Protection Bureau. This was created to eliminate the predatory practices of subprime lending that led to the crisis. It has since been implemented to help protect consumers from all types of predatory loans.
- The Protecting Consumers from Unreasonable Credit Rates Act – As of June 2022, this federal legislation is working its way around the halls of Congress. The focus is to begin regulation and force fair practices from the aforementioned payday loans. However, the proposed legislation will expand to every facet of the high-interest, no-credit loan industry. Specifically, it would establish a maximum APR of 36% for payday loans, car title loans, credit cards, and more. Depending on the slow-grinding gears of the U.S. political system, this could or could not be acted into law.
Can I get a loan if I don’t have a job?
Having a steady income is a significant indicator of your ability to repay a loan. So it is a mandatory requirement for you to have a source of income to qualify for any loan.
Do I need a bank account?
Yes, online lenders will require you to have a bank account before accepting you as a borrower.
Can I get a loan with a soft credit check?
Yes and no. While most lenders these days will allow you to get pre-approved for a loan with a soft credit check, any financial institution that uses a soft credit check from a major credit bureau to pre-qualify you for a loan will have to do a hard credit check before funding it. Generally lenders marketing no credit check loans are not checking credit with the major credit bureaus and those wouldn’t affect your credit report stored with them.
What is the easiest loan to get approved for?
The easiest loan to get approved for is a no-credit-check loan, such as a payday loan. However, buyers beware, as the loan could have a sky-high interest rate, and the lender may check your credit anyway.
Which type of loan does not require a credit check?
Loans that advertise as having no credit checks are typically payday loans or auto title loans.
What is the easiest and fastest loan to get?
The easiest and fastest loan to get is typically a payday loan. You can receive cash in as soon as the same day, but you will have to pay it back by your next payday.
What are the disadvantages of no credit check personal loans?
The main disadvantage of subprime loans with no credit check is the unreasonably high cost. Loans with no credit check come with high-interest rates. In addition, such loans can trap you in a debt cycle where you end up forced to borrow more to clear the debts.
What are the advantages of no credit check personal loans?
Typically these loans have an easy application and are usually approved quickly. In addition, there are often no penalties for early repayments. If the lender reports to a major credit bureau, making your monthly payments on time helps restore your credit score since the payment activity is reported to major credit bureaus. This would enable you to get a better rate next time you borrow.
- Credit is something that you build over time and is effectively how much trust financial institutions have in you to eventually pay the loan back in full and on time.
- People with bad credit, or no credit at all, might be tempted to select a no-credit-check loan.
- No-credit-check loans typically have bad loan terms and high interest rates.
- Payday loans, auto title loans, and other loans such as MoneyMutual loans are all examples of entities advertising “no-credit-check loans.”
- Congress has recently acted to avoid or restrict predatory loans.
- The bottom line: no-credit-check loans are probably not worth it. Try to find another way to get the money you need.
View Article Sources
- Map of U.S. Payday Interest Rates — Center for Responsible Lending
- What Is a Payday Loan? — Consumer Financial Protection Bureau
- Protecting Consumers from Unreasonable Credit Rates Act — Congress.gov
- What you need to know about the Equal Credit Opportunity Act — Consumer Financial Protection Bureau
- Dodd-Frank Wall Street Reform and Consumer Protection Act — Federal Trade Commission
- Best Holiday Loans for Bad Credit of 2022 — SuperMoney
- How to Get Dental Loans with No Credit Check — SuperMoney
- Best Personal Loans for Bad Credit | June 2022 — SuperMoney
- Best Personal Loans With No Credit Check | June 2022 — SuperMoney