Getting a personal loan with bad credit can be tough. Lenders and creditors usually require a credit check before you can borrow money, and if you have poor credit or no credit, you may be denied.
You might wonder if you can get a personal loan with no credit check. It can happen, but you may want to think twice.
“Everything in life comes with a price. It is possible to get a loan with no credit or poor credit, but be certain you can live with the terms before signing anything,” says Scott Wenger, who has covered money and business as a journalist for nearly 30 years.
If you want to take out a loan with no credit check, it may cost you more in the long run. Here’s what you should know about no-credit-check loans.
Why Is Getting Personal Loans Hard With No Credit or Poor Credit?
The higher your score, the more likely that you will be approved for a loan and the better the terms will be. The opposite is also true.
“Your credit rating is the best predictor of whether you will or will not 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. That 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 credit bureau Experian. Good scores range from 670 to 739, and 740 or higher 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 that doesn’t consider your credit rating as part of the qualification process is taking on increased risk by lending to you. But there is an upside for the lender: “The higher the risk the lender takes, the more they will be rewarded through higher interest rates,” Christensen says.
Can You Find Personal Loans With No Credit Check?
You’re not likely to find a traditional personal loan without a credit check. Most reputable personal loan companies require a credit check when you submit your application.
Still, you can get alternative installment loans, 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 pay back according to a repayment schedule.
But costs are higher, qualification requirements are different, and loan amounts are smaller than traditional personal loans.
This type of loan is an alternative to payday or title loans, which are usually available without a credit check at a high cost. You may pay a fee to renew or roll over a payday loan and delay repayment.
Alternative installment loans may charge APRs in the triple digits, sometimes well over 400%. Instead of checking your credit, lenders may assess your employment, income and bank account.
Are No-Credit-Check Loans Risky?
No-credit-check personal loans involve quite a bit of risk. For one, high APRs mean you’ll pay much more to borrow money than you would with a traditional loan.
If you take out a six-month $1,000 loan with a 200% APR, you will pay $657.19 in interest – more than half the loan amount. You will pay $107.59 if the APR drops to 36%. That’s less costly, but it’s still pricier than home equity or low-interest personal loans would be.
If you’re turning to payday or title loans to cover basic living expenses, you can end up trapped in a never-ending cycle of debt. More than four in five payday loans are rolled over, or re-borrowed, within a month, according to 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 borrowed. Similarly, nearly all auto title loans are re-borrowed when they are due or soon after.
Scammers may prey on borrowers with bad credit who are desperate for loans. If you don’t spend the time to vet lenders, you could become the victim of a scam or fraud.
Alternatives to Personal Loans With No Credit Check
If you’re considering a no-credit-check loan, first explore other options, Wenger recommends.
Start by checking with your bank or credit union to see whether it has any options that could be a fit. Your banking relationship could mean more flexibility with lending.
If you can’t avoid borrowing money and don’t want a no-credit-check personal loan, here are a few other options to try.
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Consider bad credit personal loans. Don’t assume you’ll be denied credit if the application involves a credit check. Some reputable lenders offer loans to consumers with fair or poor credit.
Lenders may evaluate your ability to repay based on your credit and factors such as your education, income and bank account balance.
Pledge collateral. You can try to apply for a secured loan if you were denied a traditional unsecured personal loan.
Although you will need a credit check, you can bolster your credit score with a loan secured by an asset such as a car, home or bank account. Of course, secured loans can present more risk to the borrower, as your collateral could be seized if you can’t repay the loan.
But if you’re confident in your ability to make payments, a secured personal loan is usually easier to qualify for and comes with lower interest rates than an unsecured loan.
Clean up your credit. If you don’t need money right away, you can take some time to improve your credit. When you are denied a loan because of poor 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 AnnualCreditReport.com. “The borrower needs to verify that the entries on the credit report are valid and then take corrective action to remedy any errors or negative notations,” says Salvador Gonzalez, a contributing faculty member in accounting for Walden University.
Ask a friend or family member for help. If qualifying for a traditional personal loan on your own isn’t in the cards right now, you could consider applying with a trusted co-signer. But proceed with caution.
Although you are the primary borrower, the co-signer is equally responsible for your debt. If you don’t pay, your co-signer’s credit will take a hit, and debt collectors may pursue your co-signer.
Alternatively, you could borrow money from a friend or family member, which would mean little to no interest, depending on your agreement. Yet this arrangement can be just as risky.
“Loans from family members can easily lead to bad feelings or fractured relationships, but in some cases can make sense,” Wenger says. “Financial planners regularly advise putting the terms of any family loan in writing to guard against misunderstandings.”
Regardless of which type of loan you choose, know what you’re getting into before you borrow.
“If you are not fully comfortable in your understanding of all the terms of a loan, you must ask an expert who is not the lender,” Wenger says. “Money is not free; if you don’t pay it back under the terms you legally agreed to, there will be consequences.”