Do you have bad credit but need a personal loan? Heading to the bank to borrow the funds may be out of the question. However, you may consider a lender that offers “no-credit-check” personal loans, such as OppLoans. These loans same-day approvals and fast funding without requiring a credit check. The interest rates are high, but not as high payday loans. Their big selling point is they much easier to get approved for than a traditional bank loan.
How do personal loans with no credit check work?
Personal loans with no credit check are structured like installment loans.
Unlike payday loans, they give consumers the ability to repay the loan amount plus interest in fixed monthly payments over an extended period. In some instances, the borrower may also have access to larger loan amounts.
Here’s how they differ from traditional personal loans:
- Credit check required
- Approval process could take a few hours or days
- Limited fees (i.e. loan origination)
- Interest rate coincides with credit score
- Employer verification required
- No credit check required
- Instant approval
- Same or next-day deposit (depending on the lender)
- Excessive fees
- Exorbitant interest rates
- Employer verification may not be required
- Automatic withdrawals to remit payment
What’s the problem with personal loans with no credit check?
Similar to payday and auto title loans, no credit check personal loans target low-income consumers with bad credit. They are have exorbitant interest rates that sometimes reach well into three figures.
Another downside: Your bank and your lender can charge you returned payment fees and late payment fees if the funds are not available.
The true cost of personal loans with no credit check
The chart below compares the estimated cost of personal loans that require a credit-check with those that don’t. The estimates are based on the rates LendingClub and Prosper charge based on credit grade. Let’s assume you take out a $3,000, 3-year loan with a fixed interest rate:
|Credit Rating||Estimated APR||Monthly Payment||Total Interest Paid Over the Life of the Loan|
|No Credit Check Personal Loan from Opp Loans||199%||$499.49||$14,981.77|
Alternatives to personal loans with no credit check
It’s possible to find other loan products, but you’ll have to do a little more legwork. Here are some options to consider.
Traditional personal loans
If the bank said no, did you consider looking online for a “yes”? There are several online lenders that offer personal loans to borrowers with poor credit. How so? Well, they don’t solely base their decision on your credit score; other factors, including employment and educational background, are considered.
Credit union loans
Consider an unsecured, fixed rate loan from the local credit union. The qualification guidelines for credit unions are not as stringent as what you’d find with traditional banks. And your approval odds may be greater if you’ve already established a relationship with the credit union.
Below is a comparison of average loan rates at credit unions and banks as of December 31, 2016:
|Product||All CUs (National Average Rate)||All Banks (National Average Rate)||27 Banks Converted from CUs (Average Rate)|
|Unsecured Fixed Rate Loan, 36 Months||9.17||10.09||11.24|
You may be able to find an unsecured loan through a peer-to-peer marketplace, like Prosper. This platform requires a minimum FICO score of 640 and connects you with potential investors that will loan you the funds in exchange for a small return. The APR ranges from 5.99% to 36%. But since there’s no middleman, the savings can be passed on to you in the form of lower interest rates.
How to avoid personal loans with no credit check
If you’re having a hard time qualifying for traditional loan products, start by creating a budget. Doing so will help get your spending in check so you can start building your cushion. And next time you have a financial emergency, you won’t be pressed for cash.
Also, start taking steps to improve your credit score. That way, you’ll qualify for better interest rates on loan products in the future. Visit Credit Karma to get your score and view recommendations that will boost your credit.
Once you’re ready to search for a personal loan, use SuperMoney’s review and comparison tool. You can filter loan options by credit score, funding time and institution.
Allison Martin is an accomplished finance writer who has written for publications including The Wall Street Journal, MoneyTalksNews, The Simple Dollar, and Credit.com. Her work has been featured on Fox Business, Yahoo! Finance, MSN Money, and ABC News. She enjoys writing about personal development, entrepreneurship, personal finance and is a Certified Financial Education Instructor (CFEI).