No credit check loans don’t require a credit score check, which can be useful if you have bad credit. But they also come with risks and often very high interest rates and fees, so you should only consider taking out one if you’ve exhausted all other options.
It’s often better to look at alternatives to personal loans for bad credit or loans for people with bad credit.
What is a no credit check loan?
With a no credit check loan, the lender does not conduct a hard credit check or check the borrower’s credit history.
The application review process and decision for a no credit check loan will be based on other factors, such as your employment status, income, and bank account history. If you apply for a secured loan, you can also borrow against collateral. No credit check loans can be an attractive option for applicants with poor credit or a shaky repayment history.
However, lenders can charge significantly higher interest rates and additional fees: The average interest rate on a personal loan for borrowers with fair to bad credit ranges from 17.8 to 32 percent, while the annual percentage rate (APR) on a no-credit-check loan can exceed 100 percent.
Although lenders won’t check your credit report, seeking a loan that doesn’t take your credit profile into account will make you a riskier borrower and you can expect a higher APR. Before borrowing, carefully review the loan agreement to make sure you understand exactly what you’re signing.
How does a no credit check loan work?
If approved, the lender will require you to pay back the funds from the no credit check loan within a specified time period. You will pay back the loan and interest just like any other loan.
Unlike loans that require a credit check, some no credit check loans don’t report your repayment history to the three major credit bureaus: Equifax, Experian, and Transunion. This means that a no credit check loan may not help you build credit. However, if you default on your loan payments and the loan is sold to a collection agency, it will be reported to the credit bureaus, which could seriously damage your credit.
Why no credit check loans are a bad idea
While no credit check loans may seem like a great option, some loans, like payday loans and auto secured loans, come with caveats. Exorbitant interest rates can lead to high payments that can trap you in a cycle of debt and negatively impact your credit. Some lenders also impose additional fees that can make it even harder to get your finances back on track.
And because many of these types of loans don’t build credit, you miss out on the opportunity for your payments to contribute to a better credit score. Simply put, no credit check loans can have quite a few negative financial consequences.
Types of loans with no credit check
There are many different types of loans that allow borrowers to get approved for funds without a credit check. Consider what you need the funds for and whether there are alternatives that might be more advantageous financially for you.
Cash advance app
Cash advance apps offer a solution to help you get through until your next payday. Typically, you can borrow between $50 and $1,000 using your next paycheck as collateral. When it’s time to repay the advance, the money is usually automatically debited from your account.
The terms are often better than payday loans. Instead, you pay a flat fee for each transfer and a membership fee to access the service. Some of the best early payday apps don’t charge a flat fee and allow you to donate a voluntary tip instead.
Payday Loans
Payday loans are small, short-term loans that you can repay on your next payday, and most must be repaid within two to four weeks.
These no credit check loans are designed to give you quick access to cash until your next payday, and while these loans can be a lifesaver in an emergency, they should be your last option, as some state regulations allow APRs to exceed 400 percent.
Installment loans with no credit check
With a no credit check installment loan, you borrow money in a lump sum and pay it back in fixed installments each month. The loan amounts are usually larger than with a payday loan, and can be used to cover just about any expense. However, be aware that in some states lenders can set APRs in the triple digits.
Auto Loan
A car title loan is a secured loan secured by the title to your car. The amount you can borrow depends on the value of your car. In many cases, you must own the car outright to qualify.
Most lenders will allow you to drive your car while you pay off the loan. If you fail to make payments on an auto secured loan, the lender may repossess your car. The average auto secured loan APR is around 300 percent, so like payday loans, secured loans should be a last resort.
Buy now, pay later
BNPL (buy now, pay later) is another short-term lending solution that doesn’t require a credit check. It allows you to make a one-time purchase that you repay in equal installments over a period of weeks or months. Most BNPL companies don’t report to credit bureaus.
Some BNPL platforms, like Affirm, require a down payment and collect the balance in three installments, at weeks 2, 4, and 6 from the original purchase date. Other platforms, like Klarna, finance the full purchase price with no down payment and collect payments every two weeks.
The main appeal of BNPL is the ability to finance purchases and pay in interest-free installments. But it can also come with penalties if you don’t make payments on time, and it often leads to overspending. In Bankrate’s latest Buy Now, Pay Later survey, nearly one in three U.S. adults (29%) who have used a BNPL service reported overspending.
How to Find a No Credit Check Loan
No credit check loans are offered by a variety of lenders, some of which have worse reputations than others, so it’s important to do your research.
- Check the interest rates each lender charges. Even if you are put off by a high APR, comparing lenders can help you get the lowest interest rate you qualify for.
- Make sure you understand all the fees associated with your loan. With payday loans, lenders may only charge a flat fee for every $100 you borrow, which can result in a higher APR for the equivalent without the interest.
- Read online reviews. For each lender, use websites like the Better Business Bureau (BBB) and Trustpilot to help you avoid companies prone to scams and poor customer experiences.
- Know your state laws. Make sure the loan you take out is legitimate and that the lender follows the restrictions on fees, interest rates, and loan terms.
If you are asked to make an upfront payment in exchange for a loan, walk away. This is a sign of a scam. Also, if a lender won’t provide you with information about all the fees associated with the loan, consider it a warning sign that they may not be honest.
No credit check loan alternatives
There are alternatives to no credit check loans that can help you get the funds you need even if you have bad or no credit.
Bad Credit Loan Lenders
There are many lenders that specialize in lending to borrowers with bad credit, and by using a lender that lends to borrowers with bad credit, you may be able to secure a lower interest rate than you would with a no credit check loan.
To get the best bad credit loan rates, compare multiple lenders before applying.
Credit union
Compared to banks, credit unions often have less stringent requirements. If you’re a member, you may be able to get a loan from a credit union even if you have a low credit score. Credit unions will take into account your entire financial situation, not just your credit score.
Additionally, the interest rate charged on most loans is capped at 18 percent, and payday alternative loans (PALs) have a maximum APR of 28 percent.
Payday Alternative Loans
Payday alternative loans (PALs) are small, short-term loans offered by some federal credit unions. Loan amounts typically range from $200 to $1,000.
They are generally more affordable than traditional payday loans, with repayment terms ranging from one to six months. When you apply for a PAL, the credit union will ask for proof of income to verify your ability to repay the loan.
Secured Loans
A secured loan is secured by something of value that you own as collateral. Collateral can be a physical asset, such as a house, car, or boat. It can also be a cash deposit.
Secured loans pose less risk to lenders, so even if you have bad credit, you may be approved. But be careful: if you don’t make your loan payments, the lender could seize the collateral.
Secured Credit Cards
If you have poor credit, you may not be approved for a traditional unsecured credit card, which is where secured credit cards come in. Some issuers don’t even perform a credit check.
When you get a secured credit card, you typically put down an amount of cash equal to the credit card’s limit. If you don’t repay the bill, the credit card issuer will deduct the amount you put down.
Bankrate’s Loan Editor, Pippin Wilbers, began her credit-building journey with a secured credit card.
“By using it for small everyday purchases and paying it off quickly, I was able to build a good credit score relatively quickly, even though I started with a small credit limit,” he says.
Joint guarantor loan
If you don’t qualify for a loan on your own, ask a trusted friend or family member to cosign and apply for the loan together. Having a cosigner with good or excellent credit increases your chances of being approved and of getting a lower interest rate on a personal loan.
Be sure to pay off your loans so you can build up your credit and avoid holding your cosigner responsible for payments.
Conclusion
If you’re strapped for cash and have a spotty (or no) credit history, a no credit check loan might be an attractive option. But many lenders charge triple-digit interest rates, so you should carefully consider this type of loan before signing an application to borrow.
Doing your research and considering all of the options available to you will help you make the best financial decision for your situation.
