What Is a No-Credit-Check Loan?

Definition & Examples of No-Credit-Check Loans

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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.

What Is a No-Credit-Check 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.

How No-Credit-Check Loans Work

With a no-credit-check loan, the lender will factor in a wider variety of data points to gauge your creditworthiness, including your credit score and non-credit-related information such as income, employment, and the standing of your bank accounts. 

To obtain your credit score, lenders usually run a "soft" credit check on your credit file with one of the "big three" credit reporting agencies: Experian, Equifax, or TransUnion. These don't impact your credit score. 

Unlike traditional loans that you might repay over several years, no-credit-check loans are typically short-term loans with a term of anywhere from one to four weeks.

Requirements

You'll still need to meet certain criteria for a loan with no credit check, but the rules will often be less stringent:

Credit Score

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.

Disadvantages 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

Typically, you must 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 to No-Credit-Check Loans

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.

Personal Unsecured Loan

A personal unsecured loan 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. These loans generally offer lower interest rates and fees for those with good to excellent credit, so it will cost less to borrow.

The lender for a traditional loan will report your payment 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 you may not see a boost in your credit even if you make on-time payments. 

If a traditional lender turns you down, consider:

Payday Loans

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 in cost. A two-week loan with a fee equating to $15 per $100 results in an APR of around 400%.

Secured 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. 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.

Key Takeaways

  • No-credit-check loans are a loan of last resort for people with low credit scores.
  • The loans are granted based on your salary.
  • Terms are generally short, just one to four weeks.
  • Interest rates can go into the triple digits.
  • Scams are common in this industry, so be careful to research any vendor.

Article Sources

  1. Experian. "Personal Loans: What to Know Before You Apply." Accessed March 17, 2020.

  2. Experian. "How to Get a Personal Loan Without a Credit Check." Accessed March 17, 2020.

  3. Consumer Financial Protection Bureau. "What's a Credit Inquiry?" Accessed March 17, 2020.

  4. Experian. "What Is a Soft Inquiry?" Accessed March 17, 2020.

  5. NetCredit. "Are No Credit Check Loans Available Through NetCredit?" Accessed March 17, 2020.

  6. Oak Park Financial. "No Credit Check Loans-How Do They Work?" Accessed March 17, 2020.

  7. Upstart. "What Are the Minimum Credit Requirements to Receive a Loan?" Accessed March 17, 2020.

  8. NetCredit. "How It Works." Accessed March 17, 2020.

  9. OppLoans. "No Credit Check Online Loans With OppLoans." Accessed March 17, 2020.

  10. NetCredit. "Frequently Asked Questions." Accessed March 17, 2020.

  11. SoFi. "A Guide to Unsecured Personal Loans." Accessed March 17, 2020.

  12. LendUp. "Frequently Asked Questions." Accessed March 17, 2020.

  13. Consumer Financial Protection Bureau. "What Is a Payday Loan?" Accessed March 17, 2020.

  14. Experian. "Secured vs. Unsecured Loans: What You Should Know." Accessed March 17, 2020.