No-Credit-Check Loans and How to Get Them
Some people have a low credit score because they made a few mistakes in the past; hopefully, they learned from these. Others aren't really to blame at all: a bad credit history can just as well be the result of circumstances beyond their control. Is it really fair that your credit report can prevent you from getting a loan?
In reality, no-credit-check loans do exist, giving individuals with bad credit a way out. They do sometimes come with more strings attached than, for example, personal loans to people with good credit scores. This makes it very important to know how exactly a loan for bad credit works, what types there are, and how to choose between them.
Key Points About No-Credit-Check Loans
Before we get started, let's take a look at some of the important characteristics of loans that do not require a credit check:
- Because a full credit check can take as long as several days, these are often the quickest loan option you have.
- Even though your credit history may not matter, there are usually other requirements like a bank account and proof of income.
- Because financial companies take a greater risk with loans on bad credit, they typically charge higher interest rates and fees.
- Alternatively, you may need to put up some form of collateral - something of value that will become the lender's property if you fail to repay the loan.
- For both payday loans and personal loans, the entire process can be done without setting foot in an office - an online loan provider will do much of the work for you.
- No-credit-check loan companies don't run a "hard" credit check; loans are approved on the basis of your income and other factors. This means that merely applying for a loan, unlike at banks, doesn't damage your credit report.
- Assuming that the lender you choose reports your repayments to the top three credit bureaus (many of them do not), taking out a no-credit-check loan can actually improve your credit score.
The Risks of No-Credit-Check Loans
The biggest danger with all loans is that you end up borrowing more than you can afford to repay. This can be very inconvenient, as most lenders will continue to charge you interest and late fees long after the original loan period has expired. Financial companies in this space may do a cursory check of whether you're able to make the payments, including by looking at your credit, but figuring this out is ultimately your responsibility.
The easiest way to do this is to draw up and stick to a budget. Knowing how much money you have coming in and going out each month is the first step towards controlling your finances. It's also helpful to pay your creditors first so that you're not tempted to spend that money on frivolous stuff. Borrowing $500 for two weeks can easily cost you $75 - this isn't a problem if it happens once in a while, but will seriously harm your finances if it becomes a habit.
You will also want to improve your credit score over time. This is a slow process at best, but having better credit will eventually allow you to look at loans that do require a credit check. These charge much more affordable interest rates, meaning that you'll one day be able to consolidate your expensive debt and reach financial independence that much faster.
Loans without a credit check can be a lifesaver if your credit is poor and you need to bridge the gap between now and the next time you get paid. They are a very expensive form of credit, though, so it's essential to shop around for the best possible interest rate and lowest fees.
Has an emergency ever forced you to take out a loan of this type? If you like, please use the comment section below to tell us how that turned out and what you'll do differently each time.
There are three main types of loans for which your credit score is not important. Each has its own pros and cons, and anyone of them may be the best financial option in your situation:
Same-day payday loans are some of the easiest loans to get regardless of your credit history. As the name implies, funds are often deposited in your bank account within hours of you being approved. The idea behind this kind of loan is that you repay the full amount out of your next paycheck, making them a good option in emergencies. Loan amounts are usually less than $500.
A personal loan can also be made without a credit check; it's not unusual for an online loan of this type to run to $2,000 or more. A personal loan is a kind of installment loan: instead of paying the loan amount back in one lump sum, you make monthly payments until the debt is cleared.
With title loans, your promise to repay the loan is backed up by pledging your car as security. This makes this type of no-credit-check loans a little risky: you'll lose the vehicle if you can't keep up with your financial obligations. On the other hand, your credit score may not even be looked at, you can borrow up to half your car's market value, and a loan like this often takes less than a day to get.
Usually, banks are very cautious about who they lend money to - your credit score will probably not be the only thing they check, but it will certainly be high on the list. In any case, the same-day payday loan business is just not part of their program. In some cases, you can get access to loan facilities by joining a credit union even with a bad credit score, but they will most likely still perform a credit check before letting you borrow much money (and many may not accept you as a member due to not living in a certain area, military veteran status and so forth).
Fortunately, a large number of financial companies have noticed this lack of loan options for low-credit individuals, as well as the shortcomings of using only a credit score as a measure of how likely a borrower is to repay a loan on time. These advertise heavily online, and some of them may have loan stores in your neighborhood.
Each of these companies has very different policies regarding how much they're willing to lend you, how high an interest rate you'll have to pay and what factors other than your credit score they're willing to look at. The most practical way to find the best deal is to use an online service like DirectLoanTransfer. To get started, all you need to do is enter some basic personal information like how much you want to borrow and your ZIP code (payday loans aren't available in all states). They will then search through their database of lenders and show you the best offers available to you, allowing you to check loan terms and compare these side by side.
There is never any guarantee of being approved for any particular loan. You can get an idea of a company's policies on low-credit loans by checking their website and reading some online reviews, but they may refuse you for any reason without having to explain why. With so many people currently looking to borrow money to deal with unemployment or emergency expenses, lenders can afford to pick and choose.
In this competitive arena, the person who's best prepared will often be the one to succeed in the application process. It's best to have all pertinent documentation ready to hand, including bank statements, pay stubs, bills from previous months, and so forth. It's not necessarily a problem if you're not currently employed or work for yourself, but you will certainly want to be able to prove some sort of income. Most lenders will happily accept Social Security or disability insurance payments.
Finally, some loans that don't require a credit check are borderline scams; you don't really want to be approved for these in the first place. If you get approval for a ridiculously high amount, you can't figure out what fees you'll need to pay, the loan's terms and conditions are unclear, you're asked for an "administration fee" upfront, or are subjected to high-pressure sales tactics, you're far better off looking elsewhere.