With a soft credit check loan, you're likely to see lower rates than you would with a no credit check loan—and it might even help your credit score!
If you have bad credit, then you may be familiar with no credit check loans. These are a type of bad credit loan that doesn’t perform any sort of credit check when you apply.
But there’s another kind of bad credit loan you should know: Soft credit check loans. This is a category that includes many of the bad credit installment loans available to folks whose low scores lock them out from traditional lenders.
1. They’re easy and fast!
If you’ve ever applied for a personal loan from a bank or other traditional lender, you know that the process is not speedy. Once you’ve entered in all your information—and they’ll ask for a lot it—you’ll still have to wait days before you receive a decision.
Soft credit check loans, on the other hand, are easy to apply for. While performing a soft credit check—and sometimes an income verification—requires more information than a no credit check application, it’s still something that you can complete very quickly.
And once you submit your application, you’re likely to get a decision in a matter of minutes or hours, not days. When you’re dealing with something like an unexpected car repair or medical bill, this sort of easy application lets you get back to focusing on what really matters.
And if you’re approved, you’ll get your funds quickly. Sometimes you can even receive your funds the same day, but oftentimes you’ll receive them by the next business day. Still, that’s much faster than traditional lenders and gets you the money you need when you need it: Now.
2. Applying won’t affect your credit.
When you apply for a traditional personal loan, the lender is going to run a hard check on your credit. This returns them a full copy of your credit report and lets them do a deep dive on your history as a borrower. Hard checks are recorded on your report and they’ll temporarily lower your score.
Soft credit checks, on the other hand, are not recorded on your credit report and do not affect your score. This is because they return less information than a hard check, giving lenders a broad overview of your credit history instead of a comprehensive reporting.
With traditional loans, getting your application denied is doubly frustrating: Not only do you not get the money you need, but your score has been lowered. With soft credit check loans, however, there is no downside. Even if your application for credit is denied, your score won’t take a hit!
3. They come with lower rates.
Soft credit check loans are still a type of bad credit loan, so their rates are going to be higher than standard personal loans. There’s really no way around it. Borrowers with bad credit default at higher rates, so these lenders have to charge higher interest rates in return to protect against potential loss.
But since soft credit check loans do their due diligence on applicants and turn down borrowers who can’t afford to repay (more on why that’s a good thing in the next section), their default rates are naturally lower than no credit check lenders.
What this means for you is simple: Soft credit check lenders often charge lower rates than no credit check lenders! Lower rates mean that you save money over the life of the loan, and they also lower your risk of getting trapped in an ongoing cycle of debt.
4. They check your ability to repay.
When you take out a loan—no matter if it’s an online loan or one from a brick-and-mortar institution—you want to be able to pay it back. Otherwise, you’ll end up with negative marks on your score and a debt collector hounding you for payments. You could even end up in court with your wages getting garnished!
With no credit check loans, the likelihood of this happening is much higher because the lender doesn’t do anything to check whether or not you can afford the loan you’re trying to borrow.
In many cases, no credit check lenders stand to make more money from their customers not paying their loans off the first time. When borrowers are forced to roll over their loan or take out another loan immediately after paying off their old one, that means more money for the lender.
But with soft credit check loans, lenders will not loan money to someone that they estimate can’t afford the loan. This is why these loans are less likely to trap borrowers in an ongoing cycle of debt: Because these lenders care about their customers paying off their loan the first time, not the fifth.
5. Some can help your credit.
With a no credit check loan, the only way you’re going to see your credit score affected is if you default on the loan and it ends up as a collections account. In other words, the only way for your score to go with a loan like this is down.
But some soft credit check lenders actually report payment information to the credit bureaus that create your credit reports. This means that on-time payments will go on your report and could help improve your score.
Your payment history is the most important part of your credit score, making up 35% of your total. As such, good payment history is critical to maintaining a good credit score or fixing a lousy one. And these soft credit check loans give you the opportunity to build better credit.
Soft credit check loans aren’t a silver bullet by any means. But the right loan can be a great tool to help you address a financial shortfall. And the best soft credit check loans can even help you to start building a brighter financial future.
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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.