The Ultimate Guide to No Credit Check Loans
If you have a low credit score or don’t have any credit at all, obtaining a loan from a traditional financial institution such as a bank may be difficult. Since traditional loans typically require a FICO credit score of 670 or above, you may need to consider a loan that doesn’t require a traditional credit check.
To explain how this works, we need to distinguish between hard credit checks and soft credit checks.
Hard credit checks
A hard credit check means pulling a full copy of your credit history.
Most often, a hard credit check occurs when a person is applying for new credit. Many lenders see excessive hard checks as a sign that a person is desperate for credit, which makes the lenders less likely to lend and potentially lowering the credit score by up to five points!
According to the FICO experts, a person with six hard credit checks within a year is eight times more likely to file for bankruptcy than someone with no hard checks.
Soft credit checks
A soft credit check may provide limited information compared to hard checks offering a brief overview of the person’s creditworthiness.
While hard credit checks have to be authorized, soft credit checks do not require authorization. You know those pre-approved credit card offers you get in the mail? Those lenders likely ran a soft check before sending you the offer.
The advantage about soft credit checks is that they are not visible to other lenders, however it will be visible to you.
For all intents and purposes, soft credit checks do not show up on your credit history—and they definitely do not affect your credit score.
What are no credit check loans?
No credit check loans can be used if you need fast access to cash for an emergency expense, such as a car repair or medical procedure, regardless of your credit. With a no-credit-check loan, lenders don’t perform a hard credit inquiry of your credit report. However, even if a lender doesn’t review your credit history as part of the application process, you still may not qualify for the loan.
Instead of a traditional credit score -- such as your FICO score that is generated by Equifax, Experian, or Transunion -- lenders will typically require personal information to show that you are financially capable to repay the loan. These may include paystubs or proof of other income, bank statements, or records of borrowing history, such as an auto loan or student loan.
The great thing about no credit check loans is that they are not visible on your credit report. If you request a copy of your report, you'll be able to see your history of soft credit checks, however, other lenders would not.
No credit check loan options
Here is a list of loans that typically don’t require a traditional hard credit check with the major credit bureaus. These include a range of options, such as online loans, fast cash from payday lenders, and more informal options like borrowing money from family and friends.
Credit unions loans
If you belong to a credit union, you may be able to receive a secured or unsecured loan without a credit check. Some credit unions will fund loans to members who are in good standing. While some credit unions will consider financial information beyond a credit score when reviewing a member’s loan application. The determinants for the loan will vary based on the specific credit union.
Credit union payday alternative loans (PALs)
Federal credit unions offer payday alternative loans (PALs) to members who need short-term cash. These loans are typically repaid by the borrower in monthly installments instead of a single pay period and have an interest rate cap of 28%. While PALs do look at your credit score, but they specialize in providing personal loans to those with lower credit scores. They assess a borrower's income and ability to repay to determine if an applicant qualifies.
Payday loans are short-term, unsecured loans that generally don’t require a credit check. They are often a high-cost option for the borrower as they can have annual percentage rates (APRs) of 400% or more. The APR is the total cost of the loan, and includes your interest rate, fees, and the duration of repayment. If you have a bad credit score, you may pay higher APRs.
Payday loans often require the borrower to repay the loan within a couple of weeks, usually by their next payday.
Car title loans
Car title loans are secured loans that require borrowers to use their vehicle as collateral. In the event the borrower defaults on the loan, the lender can repossess the vehicle. The loan you qualify for will be equal to the value of your car. These loans can charge high fees (up to 25% of the loan amount), and usually require you to repay the loan in 30 days.
Online bad credit loans
Some online lenders provide personal installment loans to those without credit or with poor credit.
Installment loans allow borrowers to repay the loan in monthly payments. Some lenders that issue bad credit loans will run a credit check; others will use your financial information to determine financing. It’s advisable to explore multiple lenders to compare Annual Percentage Rate (APR).
Loans from family/friends
Asking a loan from a family member or close friend won’t require a hard credit check on your credit history.
Another option for obtaining a loan when you have little credit history or a bad credit score is to find a co-signer. This person will apply for the loan with you and will share responsibility in case you default. Lenders are more comfortable lending to a borrower with no credit or bad credit if they have a co-signer.
Know your credit score
Before you apply for a no-credit-check loan or another type of loan, it’s best to know your credit score. This can help you better understand the types of financing that may be available to you.
FICO Credit Score Ranges
|800 or higher
|Very good credit
|Any score below 580
Obtaining a free copy of your credit report can give you a better sense of your eligibility for different types of loans. By reviewing your credit report, you can also claim disputes to remove erroneous information.
Some lenders may use your FICO credit score to determine your creditworthiness. If you have a low credit score or don’t have enough credit history for a score, many lenders will view you as a high risky borrower.
If you have the time, consider raising your credit score and applying for a more traditional loan before pursuing a loan with no credit check. Increasing your credit score will help you qualify for a better APR.
What's loan rollover?
Loan rollover is a process in which payday lenders offer their customer an extension on the due date of their loan. While it sounds nice at first, it’s just a chance for the lender to charge the borrower additional interest for borrowing the same amount of money.
Here's an example:
You take out a $300 payday loan that costs $15 per $100 borrowed. The loan is due in 14 days, and you will owe $345 (The $300 that you borrowed + $45 in interest).
However, when those 14 days expire, you find that you don't have $345 to spare. So you opt for a loan rollover. You only pay the $45 that's due in interest, and you get another 14 days to pay back the $345 you still owe.
See what happened there? You pay the lender the $45 in interest, but they charge you an additional $45 for the two-week extension. So the loan that cost you $15 per $100 borrowed initially now costs you $30 per $100.
Measured as an annual percentage rate (APR), the true cost of this loan is pretty staggering: 390%. If you had that loan outstanding over a full year, you would pay almost four times what you borrowed in interest alone.
The real problem with no credit check loans
Now, a 390% APR might not seem significant for a loan that's only two weeks long, but that's precisely why rollover is so unfair and deceptive. The more you roll the loan over, the more expensive your loan becomes.
That's why payday lenders don't run a credit check on their potential customers. While most lenders are concerned about whether their customers can afford to repay their loans, payday lenders are the exact opposite: they are hoping their customers can't repay.
Don't believe us? Well how about this:
According to the Consumer Financial Protection Bureau (CFPB), over 80% of payday loans are the result of rollover or reborrowing. Basically, if payday loan customers could actually afford to pay their loans on time, the industry would struggle to sustain.
What about soft credit check loans?
Both “no credit check” and “soft credit check” lenders loan to people with bad credit, the kinds of folks who most traditional lenders would turn down. The big difference between the two is that “soft credit check” lenders genuinely care about your ability to repay the loan they offer.
Hence, soft credit check lenders check your credit before extending you an offer. They want to make sure it's a loan you can actually afford. Unlike no credit check lenders, they don't plan on rolling over your loan again and again and again. They intend to give you a loan that you can pay off the first time.
But that's not the only difference. While payday lenders offer you short-term loans that you have to repay all at once (something that few borrowers can actually afford to do), soft credit check lenders usually offer long-term installment loans. These loans are designed to be paid gradually, with equally sized, regularly scheduled payments.
Additionally, many times these loans are amortizing, which means that (long story short) you can save money by paying the loan off early, something you can't do with payday loans.
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