Getting a personal loan with bad credit can be difficult. Lenders and creditors usually require a credit check before you …
Getting a personal loan with bad credit can be difficult. Lenders and creditors usually require a credit check before you can borrow money, and if your credit is poor or no, you can be turned down.
You may be wondering if you can get a personal loan without a credit check. It can happen, but you might want to think twice.
âEverything in life has a price. It is possible to obtain a loan with no credit or bad credit, but make sure you can agree to the terms before signing anything, âsays Scott Wenger, who has been covering money and business as a journalist for nearly 30 years.
[Read: Best Personal Loans.]
Why is it difficult to get personal loans with no credit or with bad credit?
The higher your score, the more likely you are to be approved for a loan and the better the terms. The reverse is also true.
“Your credit score is the best indicator of whether or not you will pay your future debts as agreed,” says Todd Christensen, education manager for Money Fit by DRS, a nonprofit debt relief agency .
Most lenders require that you meet a certain credit score threshold to take out a personal loan. This score differs for each lender, but in general it should at least be in the fair range.
A credit score of 580 to 669 is fair, according to the Experian credit bureau. Good marks range from 670 to 739, and 740 or more are very good to exceptional.
In most cases, you need a credit score of 620 or higher to pass a credit check and qualify for a personal loan.
Any lender who does not consider your credit rating as part of the qualification process is taking an increased risk by lending you. But there is an advantage for the lender: âThe higher the risk taken by the lender, the more they will be rewarded with higher interest rates,â says Christensen.
Can You Find Personal Loans Without A Credit Check?
You are unlikely to find a traditional personal loan without a credit check. Most reputable personal loan companies require a credit check when you submit your application.
Yet you can get alternative installment loan, which are similar to personal loans and can be obtained without a credit check. As with a personal loan, you will get a lump sum that you will repay according to a repayment schedule.
But the costs are higher, the qualification requirements are different, and the loan amounts are lower than traditional personal loans.
This type of loan is an alternative to payday or securities lending, which are generally available without a credit check at a high cost. You can pay a fee to renew or renew a payday loan and delay repayment.
Alternative installment loans can charge triple-digit APRs, sometimes well over 400%. Instead of checking your credit, lenders can assess your job, income, and bank account.
[Read: Best Debt Consolidation Loans.]
Are Loans Without Credit Checks Risky?
Personal loans without a credit check carry some risk. For one thing, high APRs mean you’ll pay a lot more to borrow money than you would with a traditional loan.
If you take out a six-month, $ 1,000 loan with 200% APR, you’ll pay $ 657.19 in interest, or more than half of the loan amount. You will pay $ 107.59 if the APR drops to 36%. It’s cheaper, but it’s still more expensive than home equity or low interest personal loans would be.
If you turn to payday loans or title deeds to cover basic expenses, you can find yourself trapped in a never-ending cycle of debt. More than four out of five payday loans are renewed or re-borrowed within a month, depending on the Consumer Financial Protection Bureau.
The CFPB also reports that about one in four payday loans are re-borrowed at least nine times, and consumers end up paying more in fees than they borrow. Likewise, almost all auto securities loans are re-borrowed at or soon after maturity.
Scammers can prey on borrowers with bad credit who are desperate for loans. If you don’t spend the time looking at lenders, you could fall victim to a scam or fraud.
[READ: Best Bad Credit Loans. ]
Alternatives to personal loans without a credit check
If you’re considering a loan without a credit check, explore other options first, Wenger recommends.
Start by checking with your bank or credit union to see if they have any options that might be right for you. Your banking relationship could mean more flexibility when it comes to lending.
If you can’t avoid borrowing money and don’t want a personal loan without a credit check, here are some other options to try.
Consider personal loans for bad credit. Do not assume that you will be denied credit if the request involves a Credit check. Some reputable lenders offer loans to consumers with fair or poor credit.
Lenders can assess your repayment capacity based on your credit and factors such as your education, income, and bank account balance.
Guarantee of pledge. You can try to ask for a secured loan if you were refused a traditional unsecured personal loan.
Although you may need a credit check, you can boost your credit score with a loan secured by an asset such as a car, house, or bank account. Of course, secured loans may be more risky for the borrower because your collateral could be foreclosed if you cannot repay the loan.
But if you are confident in your ability to make payments, a secured personal loan is usually easier to obtain and has lower interest rates than an unsecured loan.
Clean up your credit. If you don’t need the money right away, you can take the time to improve your credit. When you are refused a loan due to bad credit, you are entitled to an explanation from the lender as well as a free credit report.
You can also get a free copy of your credit report from each of the three credit bureaus once a year at A nnualCreditReport.com. âThe borrower should verify that the entries on the credit report are valid and then take corrective action to remedy any errors or negative ratings,â says Salvador Gonzalez, an accounting faculty member at Walden University.
Ask a friend or family member for help. If you don’t qualify for a traditional personal loan at this time, you might consider apply with a trusted co-signer. But proceed with caution.
Although you are the primary borrower, the co-signer is also responsible for your debt. If you don’t pay, your cosigner credit will take a hit and collectors can sue your cosigner.
Alternatively, you can borrow money from a friend or family member, which would mean little or no interest, depending on your agreement. Yet this arrangement can be just as risky.
âLoans from family members can easily lead to bad feelings or broken relationships, but in some cases they can make sense,â says Wenger. âFinancial planners regularly advise putting the terms of any family loan in writing to guard against misunderstandings. ”
Whatever type of loan you choose, know what you are getting into before you borrow.
âIf you are not completely comfortable in your understanding of all the terms of a loan, you should ask an expert who is not the lender,â says Wenger. âMoney is not free; if you don’t pay it back on the terms you have legally agreed to, there will be consequences.
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Can You Get A Personal Loan Without A Credit Check? originally appeared on usnews.com