It is difficult to get a loan when the credit is bad, as most lenders need more than good credit. However, even if you require a credit score, you still have borrowing options that include non-credit loans.
Unfortunately, these loans have some important drawbacks, such as extremely high interest and delivery fees. Before proceeding, understand all the costs associated with this type of lending.
What is a credit check loan?
As the name suggests, uncredit check loans do not require hard credit checks or credit history reviews. Instead, lenders will make decisions based on other considerations, such as employment status, income, and bank account history. If you are applying for a secured loan, you can also borrow based on the value of the collateral.
Because poor credit borrowers are considered higher risk, lenders charge significantly higher interest rates and additional charges for these types of loans. The average interest rate for personal loans is close to 12.5%, but if you have poor credit, you can expect an interest rate close to 36% if you are eligible. On the other hand, non-credit check loans may have an annual rate (APR) in triple numbers.
How credit check loans work
Like most forms of credit, you repay your loan balance and interest for a given repayment period.
However, unlike loans that require a credit check, credit check loans can have significantly shorter repayment terms (compared to multiple years) and are more expensive. Your responsible repayment may not be reported to the three major credit bureaus (Equifax, Experian, Transunion).
If you default on the loan and it is sold to a debt collection company, delinquency will be reported to the credit department, causing additional harm to your credit.
Why there is no credit check loan is a bad idea
Simply put, no credit check loans can lead to a significant number of negative financial results.
While non-credit loans may seem like a great option, some of them need to be approached with caution, like payday or car title loans. Excessive interest rates lead to high payments. Also, some lenders charge additional fees that make it even more difficult to acquire financially in sequence.
Pros and cons of credit check loans
Before signing on to a non-credit loan, be sure to fully understand the advantages and disadvantages of this type of borrowing.
Types of non-credit loans
There are many different types of loans that do not require borrowers to conduct credit checks to obtain approval for funds. Consider why you need funds and whether there are alternative options that could be beneficial to your finances.
How to shop for credit check loans
No credit check loans are offered by a variety of lenders, some of which may have less reputation than other lenders, so it is important to do your research.
- Each lender will check the interest rate charged. Even if you’re stuck with a high APR, comparing lenders can help you identify the lowest and most competitive rates you qualify for.
- Understand all fees related to borrowing. For example, with a payday loan, lenders may charge a flat rate per $100 borrowed. This means that even if you don’t care, you have a high equivalent APR.
- Read online reviews. Before deciding on a lender, check each lender using websites such as the Better Business Bureau (BBB) or TrustPilot to avoid fraud and businesses that have poor customer experiences.
- Know your state laws. Before signing a loan agreement, make sure that the loan you are considering is actually legal. Lenders follow restrictions on fees, interest and loan terms.
A safer alternative to credit check loans
There are several uncredited loan alternatives that can provide the necessary funds even if you have poor credit or no credit.
Delinquent credit loan lender
Some lenders specialize in lending to poor credit borrowers. Using a bad credit loan lender may allow you to secure lower interest rates than credit check loan loans. To get the best bad credit loan fees, shop with multiple lenders before applying.
Credit Union
Compared to banks, credit unions often have generous requirements. As long as you are a member, you may be able to obtain approval for a loan from a credit union, even if you have a bad credit. The credit union will look at your credit as well as your overall financial situation. Federal credit unions should keep interest rates on most loans at an 18% cap.
Payday alternative loan
Payday Alternative Loans (PALS) are small, short-term loans offered by some federal credit unions. Loan amounts typically range from $200 to $2,000. They are generally more affordable than traditional payday loans and repayment terms. Prices are limited to 28%.
If you apply for a companion, the credit union will require proof of your income so that you can pay off the loan.
A safe loan
A secure loan is protected by collateral. This is something you’re worth owning. Collateral is a physical asset such as a home, car, boat, or even cash deposits. A secured loan is approved for a poor credit lender because it is less risky to the lender. The warning is that the lender can grab your collateral by default on the loan.
Details: Secure and unsecured personal loans: Important differences
Secure credit cards
You may not be approved for traditional credit cards that have a poor credit rating. That’s where secure credit cards come in. Some issuers do not perform credit checks. When you open a secure credit card, you usually create a cash deposit equal to your credit limit. Credit card issuers will receive a deposit if they do not repay the invoice.
Bankrate Loans editor Pippin Wilbers began his credit building journey with a secured credit card, which he used for his daily small purchases. “By paying it back right away, we were able to build a good credit score relatively quickly, even with a small starting credit limit,” he says.
Cosigner loan
If you are not eligible for the loan yourself, ask a trusted friend or family member to become your cosiner to apply for the loan with you. If you have a Cosigner approved and has excellent credit or excellent credit, you will qualify for a lower personal loan interest rate. Pay off your loan so you can improve your credit. Also, make sure that the co-signers are not liable for payments.
Conclusion
If you are asked for cash and have a flat (or non-existent) credit history, a credit check loan can be an attractive option. However, many lenders should consider carefully before signing, as they charge interest rates well in triple digits.
Research and consider all available alternatives to ensure that you make the best financial decision for your situation.
