If your credit score is less than ideal and you’re struggling to find a loan with a traditional lender, you might consider a no-credit-check loan.
A no-credit-check loan is just what it sounds like. It’s a loan that doesn’t require a hard credit check or a review of your credit history. While this might sound like a great option if you have a low or thin credit score, there are risks to consider.
Who Qualifies For no-credit-check Loans?
With a no-credit-check loan, a hard credit check is not required to borrow money. A hard credit check is when a lender requests to review your credit report as part of the loan application process.
Since no-credit-check lenders don’t review your credit report, you might still qualify for a loan even if you’ve declared bankruptcy. The amount you can borrow and the interest rate associated with borrowing can vary based on your ability to repay your loan.
While different lenders have different qualification criteria for a no-credit-check loan, there are some key pieces of information they may want to see, including:
Proof of income
A lender may request that you provide pay stubs or bank statements so they can confirm if you have a steady stream of income. Lenders might have income minimums that you have to meet before they will lend to you.
Debt to income ratio
Lenders might also look at your debt-to-income ratio (DTI) to see if you can afford to take on additional debt. Your DTI compares your monthly pre-tax income to your monthly debt load to indicate how likely you are to repay your loan.
Some lenders might require a guarantor to qualify for a no-credit-check loan. A guarantor is someone who agrees to pay your debts if you default on your loan. Having a guarantor helps to reduce the risk to your lender and can increase your chances of qualifying.
Types of no-credit-check Loans
Different lenders offer different types of no-credit-check loans. Some common types of no-credit-check loans include:
A no-credit-check payday loan is a short-term loan that comes with very high fees. The loan period is only a few weeks, and you can borrow up to $1,500.1 The cost of borrowing with a payday loan is much higher than a traditional line of credit or a cash advance on a credit card.
For instance, if you want to borrow $300 for 14 days, a payday loan will cost you $51.00 compared to $7.65 when you borrow using a credit card cash advance. The cost of borrowing with a payday loan equates to an annual interest rate of 442% versus 23% for a cash advance.
On top of the borrowing fee, you will also have to pay additional fees and interest charges if you can’t repay some or all of the payday loan on time.
Because of the high fees and interest rates associated with payday loans, they are often difficult to pay back. The total amount you owe will continue to rise until you repay the loan, making it easy to get caught in a cycle of debt.
An unsecured loan differs from a secured loan in that you don’t have to offer collateral. Collateral is an asset that is used to back up your loan, such as your car or home. Secured loans often come with lower interest rates because the risk to the lender is less.
Several online lenders offer unsecured personal loans that don’t require a credit check. Because you don’t have to put up collateral, the risk to the lender is higher. As a result, these loans typically have higher interest rates, shorter payback periods, and lower loan amounts.
Since different lenders offer different rates and loan terms, it’s helpful to compare multiple lenders before making a decision.
Title loans, also known as vehicle collateral loans, allow you to borrow money using your car as collateral. While you won’t find a title loan through a bank or credit union, they are available from alternative online lenders. The amount you can borrow typically depends on the value of your car. Many lenders will require that you own your car outright to qualify for a loan.
Title loans are generally short-term, ranging from three months to three years, and have high-interest rates and fees.2 Interest rates can be as high as 60% per year. There may also be additional fees such as a vehicle evaluation fee to determine the value of your car or a search fee to see if your car has been in an accident.
Depending on where you live, some lenders might even charge you a fee to install a GPS tracker and ignition immobilizer. The GPS tracker allows the lender to track the location of your car, and the ignition immobilizer allows them to shut off your car remotely. Missing a payment or making a late payment could result in the lender locating and seizing your car.
How to Find a no-credit-check Loan
If you’re interested in a no-credit-check loan, you can use the following tips to locate a lender that works for you.
With no credit history or a poor credit score, you might find it difficult to qualify for a traditional loan with a bank or credit union. While it might be easier to borrow money using a payday loan, you risk high fees and interest charges. However, there are online lenders that offer no-credit-check loans and more reasonable interest rates. Taking time to compare different lenders can help you find the no-credit-check loan that is best for your situation.
Consider interest rates
When comparing lenders, one of the most important factors to consider is the interest rate. Since you are looking for a no-credit-check loan, the risk to lenders is higher because they can’t assess your full credit history. For this reason, you can expect to pay a high-interest rate, and additional fees. However, this doesn’t mean you should settle for unreasonably high rates, like those offered through payday lenders.
Understand term loans
Before accepting a no-credit-check loan, make sure you understand the terms of the loan. The terms may include:
- Loan repayment period: This is the amount of time you have to repay your loan. No-credit-check loans often have shorter repayment periods than traditional bank loans. You can ask if there are any penalties associated with early payment and what happens if you can’t afford to repay your loan on time.
- Loan amount: This is how much money you qualify to borrow. When determining the loan amount, make sure you can realistically afford to repay it.
- Interest rate and fees: How are you charged for the no-credit-check loan? In many cases, you have to pay a flat borrowing fee. For instance, a payday loan charges $17 per $100 borrowed. If you fail to repay your loan on time, you may also be on the hook to pay interest.
- Collateral: Some no-credit-check loans, including a title loan, require you to put up collateral. You can also find no collateral loans, such as unsecured personal loans. Make sure you understand the consequences of what will happen to your collateral if you don’t repay your loan.
The Bottom Line
If you have a low credit score or no credit score, no-credit-check loans are available. While a no-credit-check loan is typically easier to qualify for than a traditional personal loan, they also tend to have much higher fees and interest rates. No-credit-check loans are also smaller and tend to come with shorter repayment periods.
Before taking on a no-credit-check loan, consider if you have other borrowing options, such as asking a friend or family member to loan you money or using a cash advance app, such as Bree. Bree provides fast access to up to $200 at 0% interest and there is no credit check required.