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.
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Typically, you must agree to have loan payments automatically withdrawn from your linked bank account.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.
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.
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.
