What to Know About No-Credit-Check Personal Loans
Let’s face it: Sometimes you need cash. Sometimes your car breaks down and you have no way to get to work without one. Sometimes you have medical bills that are more than you can pay, and they’re about to go to collections. Whatever your situation, you’re in need — and your credit isn’t fantastic.
Generally, to get a personal loan, you need reasonable credit. Your credit score is a number that tells creditors how you’ve handled credit and debt in the past. If you’re frequently late on payments or you’ve defaulted on some debt — or even if you just don’t have enough of a credit history to warrant a credit score — you could look like a credit risk to the typical lender.
But some lenders offer personal loans without a credit check. So even if you have poor credit or no credit, you can still get access to cash.
What is a no-credit-check personal loan?
A no-credit-check personal loan is exactly what it sounds like: It’s a personal loan you can get without a credit check. Lenders for these loans understand that borrowers might not be able to pay them back in a timely manner.
4 things to watch out for with no-credit-check personal loans
Although no-credit-check loans may seem like the answer to your problems, there are some (big) disadvantages to borrowing money this way. Here are some things to keep an eye on.
The interest rate will be sky-high. Lending money to people without a credit check is risky business, and lenders charge for the privilege. That means interest rates are frequently as high as 350% or more. Even if you can pay the balance back in full — and on time — you’ll still pay more interest than is financially wise. And if you get behind in your payments, you could end up in a damaging cycle of debt.
You could get caught by a predatory lender. Some lenders offering no-credit-check loans are payday lenders, who offer short-term, small loans at high interest rates, with the understanding that you’ll pay back the loan when you get your next paycheck. Interest rates can be as high as 400%. If you’re not in a position to pay the lender back on schedule, you could end up with overdraft fees and other bank charges.
You could lose your stuff. Some lenders will give you cash if you offer your vehicle as collateral — you can borrow up to 50% of what the car’s worth. This is called a car title loan. Interest rates on these loans are extremely high, and if you can’t pay them back, you could lose your car.
You could get scammed. People who need money in a hurry tend to overlook the details. If an offer seems too good to be true, it probably is. A scam lender could use your loan paperwork to sell your personal information or commit identity theft. (If you’re doing a no-credit-check loan, it shouldn’t need your Social Security number anyway.) Be cautious about sharing your information with any company that gives you pause.
Alternatives to no-credit-check personal loans
Thankfully, no-credit-check personal loans aren’t your only option, even if your credit score is in the basement. Here are some things to consider.
Credit unions. If you belong to a credit union, it may be willing to offer you a small loan because you’re a customer, and it has your financial history. “If you’re a long-standing member, there’s nothing to prevent them from giving you a greater loan amount,” said Martin Lynch, director of education for Cambridge Credit Counseling Corp in Agawam, Mass.
If you aren’t a customer, you may be able to get what some credit unions call a payday alternative loan, or PAL. The amounts offered are usually low — $1,000 or less — but interest rates are capped and there are low fees to apply. “Those are an alternative if you only need to borrow a little bit,” Lynch said.
Borrow from friends and family. Although it’s not the most fun to ask friends and loved ones for money, it may be your best option in a pinch. Make sure they understand that it will be a loan rather than a gift. Agree on an interest rate, and make it official with paperwork from a service like LoanWell.
Low-credit loans. Although no-credit-check loans are almost always a bad idea, some lenders will offer money to those with a minimum credit score of just 600. LendingPoint, Avant and LendingClub, for instance, are in this group. Interest rates will still be high, but they generally top out at around 36%, which is better than what you’ll find for no-credit-check loans.
Get a loan with a cosigner. If you’re close to someone with good credit, consider whether they’d be willing to cosign a personal loan with you. This isn’t a small ask. If you default on the loan, they’ll be on the hook to repay it. Not all lenders allow cosigners, so do your homework before approaching a lender.
How to establish credit when you have no history
The need for a no-credit-check loan disappears if you can establish or rebuild your credit. Try these strategies for the best (and quickest) results.
Apply for a secured credit card. A secured credit card is backed by a deposit you make depending on your creditworthiness, and your spending is limited based on how much you deposited. As you build a history of on-time payments and responsible use, you could apply for an unsecured card.
Have someone add you as an authorized user. If you’re close with someone who has good credit, ask them if they’d be willing to add you as an authorized user to a credit card. You’ll be able to use the card, and the card’s payment history will appear on your credit report. (Hint: Pay your bills on time.)
Ask about a secured loan. Sometimes referred to as credit-builder loans, these are loans a bank may give you to help you build credit. For this kind of loan, you deposit money into an account and borrow against it, and then make payments to the bank.
Keep good credit habits. The vast majority of your credit score comes from on-time payments (35%) and amounts owed (30%). So you can do a lot of good by paying everything on time, from your student loans to car loans and any other outstanding debt. And, to the extent that you can, keep your debt levels low.