No credit check loans can be an appealing option for those who are worried about their credit history. These loans may incur higher costs than traditional loans and borrowers may be limited in the amount they are able to borrow.
What Is A No Credit Check Loan?
A no-credit-check loan, unlike traditional loans, does not require a hard FICO credit check. Lenders who provide no-credit-check loans will look at other variables to determine whether to extend a loan. This can appeal to borrowers hoping to take out a loan but who are concerned about a less-than-perfect credit history or lack of credit score.
Why Do Banks Perform Credit Checks?
Banks and traditional lenders will typically check credit history as a way of determining a borrower’s creditworthiness. Most importantly, they want to assess their risk and the likelihood of the borrower being able to repay the loan. Credit history helps lenders decide the conditions of the loan such as how much to lend, interest rate and loan term.
Generally speaking, if a borrower has a lower credit score, banks are more likely to extend the loans with higher interest rates as they understand the loan as more risky. Those with good credit scores, on the other hand, will have more favorable loan terms such as lower interest rates. If borrowers have a bad credit score (usually below 580) they are unlikely to be approved for a loan by these lenders.
For no-credit-check loans, your application will based on other factors such as employment or existing loans and credit. This means that those who may not qualify for a traditional loan may still be able to take out a no-credit-check loan.
How Do No Credit Check Loans Work?
Applications for no credit check loans tend to be very straightforward and lenders usually offer the service both online and in-store. In a lot of cases, these applications can be assessed or approved very quickly, sometimes receiving funds on the same day.
To apply for a no credit check loan, you will usually be required to answer questions about your employment and bank details in order to verify your income. Some lenders may also have a look at credit utilization and recent payment history to help them determine whether or not to approve your loan and with what conditions.
What Types Of No Credit Check Loans Are There?
Direct lenders offer two types of loans without the need for hard checks: payday loans and personal loans.
Payday loans – payday loans are a form of short-term loan (usually two weeks) which are designed to cover emergency payments. They can be approved in minutes and the idea is that they are repaid in full plus interest on your next payday. Payday loans are notorious for their high-interest rates meaning that, in some cases, they can be dangerous for borrowers as they risk entering a cycle of debt.
Personal installment loans – unlike payday loans, personal installment loans typically offer longer terms and lower interest rates. The principal amount of the loan and the interest are repaid over a series of regular monthly payments. However, lenders offering personal installment loans with no credit check may also charge greater interest rates and higher fees.
Should I Take Out A No Credit Check Loan?
No credit check loans can be an appealing option for those with poor or no credit history as they typically involve a simple application, quick access to funds and no negative impact on your credit history.
Unlike other types of loans, there are typically no penalties for early repayment of no credit check loans and if you regularly meet repayments, it will positively impact your credit score. This means that you improve your borrowing power for any future loans.
However, there are also disadvantages associated with no credit check loans. One of the main downsides is the high cost they can incur with lenders often charging a higher interest rate.
Another disadvantage is that there is usually a limit to how much you are able to borrow. This will vary between lenders and will also depend on state regulations.
How Can I Get A No Credit Check Loan?
Before applying for a no-credit-check loan, you should always research your options to make sure that these lenders definitely offer loans without requiring access to your credit score. Applying for many different loans in a short amount of time can highlight you as a risky borrower, even if lenders are not looking at your credit score.
Lenders who offer no credit check loans will look at other factors so in your research stage you should check what these are and make sure that you have access to all relevant information. These factors will vary between lenders but could include things such as age, income, employment history or details of collateral.
There may be basic checks carried out at the application stage which are sometimes referred to as a “soft credit check”. This will assess things such as repayment of other loans and credit in the past.
Who Are No Credit Check Loans For?
People who have a less than perfect credit score and are worried about being approved for a loan may turn to no credit checks to improve their chances of qualifying for a loan.
It should be noted that the majority of lenders will use credit checking to assess borrower eligibility, be it a thorough credit check (hard credit check) or a basic look at repayment of past loans. However, specific lenders will operate on a no credit check basis and working with a loan comparison site can help you find the right lender to suit your personal circumstances.