Although most lenders take your credit report before deciding whether or not to approve you for a loan. to lend, some offer loans without a credit check. Since loans that don’t require a credit check usually come with very high interest rates, it’s best to stay away.
What is a loan without a credit check?
A loan without credit check is a loan that does not require a credit check. You might be tempted to apply if you don’t have the best credit and think you can’t get approved for other types of finance products. Here are some examples of loans without a credit check:
Payday loans are small, short-term loans that you can pay off the next time you get paid. In most cases, you will pay them back within two to four weeks. These no credit check loans are designed to quickly provide you with cash until your next paycheck.
Installment Loans Without Credit Check
With installment loans without a credit check, you borrow a lump sum of money and pay it back over time through fixed monthly payments or installments. They usually come with larger loan amounts than payday loans and can be used to cover just about any expense.
Auto title loans
Auto title loans are secured loans that use your car as collateral. You give the lender title to your car in exchange for borrowing money. The amount you can receive will depend on the value of your car. Most lenders will allow you to drive your car while you pay off the loan. If you default on a car title loan, the lender can repossess your vehicle.
Secured credit cards
You cannot get the approval of a traditional unsecured credit card with bad credit. This is where secured credit cards come in – some issuers don’t do credit checks for them. When you take out a secured credit card, you make a cash deposit which is usually equal to your credit limit. The credit card issuer will take your deposit if you don’t pay your bill.
If you don’t qualify for a loan on your own, have a trustworthy friend or family member co-sign and apply for a loan with you. You are more likely to be approved and get a great interest rate if you have a co-signer with good or excellent credit. Just make sure you pay off the loan so you can improve your credit and don’t leave your co-signer responsible for the payments.
Why aren’t loans without a credit check a good idea?
Although loans without a credit check may seem like good options at first glance, you should avoid them if possible. Their sky-high interest rates lead to high payments, which can put you in a cycle of debt and wreak havoc on your credit. You may find that a loan without a credit check does more harm than good to your long term financial situation.
Can I get a loan with bad credit?
You don’t have to go for a no credit check loan if you have bad credit. Fortunately, there are many lenders who accept borrowers with bad credit. They may look at factors other than your credit to determine whether it is appropriate for you to approve a loan, such as your income, work history, and debt-to-income ratio.
What are the alternatives to loans without a credit check?
There are several alternatives to loans without a credit check that can give you the funds you need, even if you have bad credit or no credit. Here is a brief overview of them.
Bad credit lenders
A number of lenders specialize in providing money to borrowers with bad credit. If you go with a bad credit lender, you may be able to secure a relatively low interest rate for someone with less than stellar credit.
Compared to banks, credit unions often have lenient demands. As long as you are a member, you may be able to get approved for a loan from a credit union, even with bad credit. Credit unions will likely look at your entire financial situation in addition to your credit. In addition, the interest rate they can charge is capped at 18%.
Alternative payday loans
Alternative Payday Loans (ALP) are small, short-term loans offered by some federal credit unions. They are generally more affordable than traditional payday loans and come with longer repayment terms. If you apply for PAL, a credit union will ask you for proof of your income to make sure you can repay your loan.
Secured loans are backed by collateral, which is something valuable that you own. Collateral can be a physical asset like a house, car or boat. It can also be a cash deposit. Since secured loans are less risky for lenders, you can get one with bad credit. The caveat, however, is that the lender can seize your collateral if you don’t repay your loan.
The bottom line
If you have bad or no credit and need to borrow money, don’t go for a loan without a credit check. Instead, explore the alternatives available to you and think about the pros and cons of each. By choosing an alternative such as a loan from a bad credit lender, you can save on interest and significantly reduce the overall cost of borrowing.