What Is a No-Credit-Check Loan?
These loans are a classic case of "Buyer Beware"
No-credit-check loans make it possible to borrow without undergoing the hard credit inquiry that lenders conduct to assess your creditworthiness when you apply for a traditional loan.
These products may take the form of personal loans, installment loans, and other loans, and can be useful if poor or insufficient credit prevents you from getting a traditional bank loan. But they come with risks, so it's useful to understand how these loans work and what other options are available to you before you proceed to get a loan with no credit check.
Basics of No-Credit-Check Loans
You can't simply hold your hand out and expect a lender to drop cash into it. With a no-credit-check loan, the lender will still review your financial picture but will factor in a wider variety of data points to gauge your creditworthiness, including your credit score and non-credit-related information like your income, employment, and the standing of your bank accounts.
To obtain your credit score, lenders will usually run a "soft" credit check on your credit file with one of the "big three" credit reporting agencies: Experian, Equifax, or TransUnion. Soft checks don't impact your credit score.
Unlike traditional loans that you might pay repay over several years, no-credit-check loans are typically short-term loans with a loan term of anywhere from one to four weeks. You'll generally receive the loan proceeds relatively quickly—in some cases within one business day.
Requirements for No-Credit-Check Loans
You'll still need to meet certain criteria for a loan with no credit check, but the rules will often be laxer compared to traditional loans:
- Credit score: While a lender who offers these loans will likely obtain your credit score through a soft check, the minimum credit score requirements are much more lenient. Some lenders require a credit score of as low as 620, while others don't require any specific score.
- Age: You must generally be at least 18 years old (or 19 in Alabama or Nebraska).
- Income: You must have a job or another verifiable source of reliable income.
- Bank account: You'll need a valid checking or savings account, depending on the lender.
Risks of No-Credit-Check Loans
Loans that require no credit check come with some notable drawbacks:
- Higher interest: These loans may impose an annual percentage rate (APR) of anywhere from 6% to 199% or higher, making them an expensive proposition in terms of interest costs.
- Shorter loan term: You'll have less time to pay off these short-term loans, which might put you in a cash crunch.
- Fees: You might have to pay a one-time origination fee for the loan and later make late-payment penalties, which could add to total loan costs.
- Unexpected withdrawals: You must typically agree to have loan payments automatically withdrawn from your linked bank account. If you run out of cash or have a pending payment to a mortgage company, landlord, or another biller, it may not clear after the loan payment is taken out. Missing an important monthly bill can leave you in a dire personal situation. Moreover, bank overdraft fees and credit dings for a late loan payment can further weaken your financial position.
A failure to make payments on a no-credit-check loan can leave you in a situation that's even worse than the one that required you to get the loan.
Alternatives for Borrowers With Poor or No Credit
Even if you have poor credit, it’s worth applying for a more traditional and most likely less expensive loan before you take the no-credit-check option.
Visit your bank or credit union to explore your options for borrowing. If you're not purchasing a car or a home, consider getting a personal unsecured loan, which allows you to use the money for varied purposes (debt consolidation or home improvement, for example) and won't require you to put up collateral to secure the loan.
Importantly, these loans generally offer lower interest rates and fees for those with good to excellent credit, so it will cost less to borrow. Moreover, the lender for a traditional lender will report your loan activity to the credit bureaus, which can help you build or repair your credit. Some, but not all, lenders who offer no-credit-check loans will do this, which means that you may not see a boost in your credit even if you make on-time payments.
If a traditional lender turns you down, consider other loan options for those with poor credit.
No-credit-check loans are similar to payday loans, which are also expensive, short-term loans. In fact, a lot of advertisements for no-credit-check loans are really just ads for payday loan programs. These lenders don’t make loans based on your credit score. They look at your income instead, and they assume that you’ll keep your job long enough to pay off the loan.
Payday loans can be exorbitant. A two-week loan with a fee equating to $15 per $100 results in an APR of around 400%.
Unlike unsecured loans, secured loans such as installment loans require you to pledge collateral with a monetary value that has the same or higher value than the loan amount in order to protect the lender from losses if you fail to repay the loan. The lender gives you money, and you must authorize them to take the collateral if you fail to repay the loan on time.
Car title loans, for example, allow you to borrow against the value of your automobile. But if you fail to pay, you could lose the car that you use to get to work and earn a living.
Getting a Cosigner on a Traditional Loan
A cosigner is someone who financially backs a loan for someone else to increase the odds of loan approval. This means that your cosigner will be on the hook for loan repayment if you default, and their credit will be hurt, too. It might be difficult to find someone who's willing to go out on a limb for you like this. But a family member might be comfortable cosigning a loan if you're facing a financial emergency.
If the person isn't willing to take the risk, ask if they would be willing to personally loan you the money. If you are unable to eventually pay them back, at least their credit score would be unharmed.
When to Consider Loans Requiring No Credit
In general, getting a no-credit-check loan only makes sense if your credit score is below 700. Even then, given the financial drawbacks, it’s best to use a loan requiring no credit check when you’re truly out of loan options.
Use them to purchase "needs" rather than “wants." For example, this type of loan might make sense if you need to fix your car so that you can commute to work and earn a living, or to pay for a necessary medical procedure that you have no other way of funding.
Finding a Lender for a No-Credit-Check Loan
Some credit unions offer loans with no credit check to their members, so look into this option first if you qualify.
Barring that option, the internet might be your best bet. Many reputable online lenders specifically work with those with poor credit.
Check the background and history of any lender you're considering. Ensure that the lender is registered with the state Attorney General’s office or your state’s Department of Banking or Financial Regulation. Likewise, search the web for comments and ratings from other borrowers.
The most common no-credit-check loan scams involve charging fees while providing nothing in return. Application fees aren't uncommon, but beware of lenders who want fees up front, as you might not get what you pay for.
Fees should always be clearly disclosed. Reputable lenders will tell you what to expect, while scam artists will take what they can for as long as you’ll give it to them. Any fees should be taken out of your loan proceeds after your loan is approved.
The Bottom Line
No-credit-check loans present an option for those with poor or insufficient credit files, but they're generally more expensive than traditional loans because they're riskier for the lender to make. In the worst case, a no-credit-check loan can turn into a financial nightmare that snowballs and puts you at even more of a disadvantage.
One way to avoid these loans and secure a traditional loan with more favorable terms is to build or rebuild your credit as soon as possible:
- Start with a secured credit card, which allows you to put down a deposit with the lender to cover your balance in the event that you do default.
- Ask a family member to add you to his credit card as an authorized user. This activity will sometimes show up on your credit report and can improve your score if you keep it in good standing.
Experian. "Personal Loans: What to Know Before You Apply." Accessed March 17, 2020.
Experian. "How to Get a Personal Loan Without a Credit Check." Accessed March 17, 2020.
Consumer Financial Protection Bureau. "What's a Credit Inquiry?" Accessed March 17, 2020.
Experian. "What Is a Soft Inquiry?" Accessed March 17, 2020.
NetCredit. "Are No Credit Check Loans Available Through NetCredit?" Accessed March 17, 2020.
Oak Park Financial. "No Credit Check Loans-How Do They Work?" Accessed March 17, 2020.
OppLoans. "No Credit Check Online Loans With OppLoans." Accessed March 17, 2020.
Upstart. "What Are the Minimum Credit Requirements to Receive a Loan?" Accessed March 17, 2020.
NetCredit. "How It Works." Accessed March 17, 2020.
NetCredit. "Frequently Asked Questions." Accessed March 17, 2020.
SoFi. "A Guide to Unsecured Personal Loans." Accessed March 17, 2020.
LendUp. "Frequently Asked Questions." Accessed March 17, 2020.
Consumer Financial Protection Bureau. "What Is a Payday Loan?" Accessed March 17, 2020.
Experian. "Secured vs. Unsecured Loans: What You Should Know." Accessed March 17, 2020.
Federal Trade Commission. "Advance-Fee Loans." Accessed March 17, 2020.