Key takeaways
- No-credit-check loans cater to those with low credit scores or a thin credit history.
- Interest rates and fees are typically far above the average personal loan.
- These loans should be approached with great caution and as a last resort funding option.
Obtaining a loan when you have bad credit can be challenging as most lenders like to see a good to excellent credit score. There are still some borrowing options if your credit score needs work, including no-credit-check loans.
Unfortunately, these loans have some downsides, including extremely high interest and origination fees. Before proceeding, be sure you understand all the costs associated with this type of lending.
What is a no-credit-check loan?
As the name indicates, a no-credit-check loan does not require a hard credit check or a review of your credit history. Instead the lender makes its decision based on other considerations, such as your employment status, income or bank account history. You may even borrow based on collateral if you apply for a secured loan.
Since you are considered a higher risk, lenders can charge significantly higher interest rates and additional fees for these types of loans. The average interest rate on a personal loan for borrowers with fair to bad credit is 17.8 percent to 32 percent. No-credit-check loans, on the other hand, may have annual percentage rates (APRs) of over 100 percent.
How no-credit-check loans work
Once approved, you’ll be required to repay funds from the no-credit-check loan over a specified term. The debt must be repaid with interest just like any other loan.
Unlike loans that require a credit check, some types of no-credit-check loans don’t report repayment history to the three major credit bureaus — Equifax, Experian and Transunion. This means a no-credit-check loan might not help you build credit. But if you default on the loan, and it’s sold to a debt collection company, the debt may be reported to credit bureaus, causing significant harm to your credit.
Why no-credit-check loans are a bad idea
Simply put, no-credit-check loans can lead to quite a few negative financial consequences.
While no-credit-check loans may seem like a great option, some of them — like payday and car title loans — should be approached with caution. Exorbitant interest rates lead to high payments, which can steer you into a relentless cycle of debt, and can negatively impact your credit. Some lenders also tack on additional fees that make it even harder to put your finances in order.
Pros and cons of no-credit-check loans
Before signing on for a no-credit-check loan, be sure you fully understand the benefits and drawbacks of this type of borrowing.
Pros
- Available even if you have bad or no credit
- Easy application process
- Cash provided quickly
Cons
- Higher interest rate and fees than other loan types
- Create debt cycle that can be hard to escape
- Potential predatory lenders
Types of no-credit-check loans
There are different types of loans that don’t require borrowers to go through a credit check to get approved for the funds. Consider what you need the funds for and if there are alternative options that could be more beneficial to your finances.
Cash advance apps
Cash advance apps offer a solution to hold you over until the next paycheck. You can typically borrow between $50 and $1,000 against your paycheck. When it’s time to settle the advance, it’s typically withdrawn automatically from your account.
Terms are often better than payday loans since you pay a flat fee per transfer, as well as a membership fee, to access the service in most cases. Some of the best early payday apps skip the flat fee and allow you to contribute a voluntary tip instead.
Payday loans
Payday loans are small, short-term loans you can pay back the next time you get paid. Although these loans can be a lifesaver in case of an emergency, they should be your last choice because some state regulations allow APRs higher than 400 percent.
Most are payable within two to four weeks. These no-credit-check loans are designed to provide you with quick cash to hold you over until your next paycheck.
No-credit-check installment loans
With no-credit-check installment loans, you borrow a lump sum of money and repay it over time through fixed monthly payments. They usually come with larger borrowing amounts than payday loans and can be used to cover just about any expense. Just be aware that some states allow lenders to set their APRs in the triple digits.
Pawn shop loans
Pawn shops offer cash loans in exchange for a valuable item that you own. In order to make the loan, the pawn shop will typically assess the value of the asset you’re offering and provide a cash loan for a percentage of the item’s value. The pawn shop then holds onto the item until you repay the loan in full. If you fail to repay the debt, the pawn shop can sell the asset you provided as collateral.
Car title loans
Car title loans are secured loans that use your car title as collateral. Just like payday loans, title loans should be a last resort because the average auto title loan has an APR of about 300 percent.
The amount you can borrow depends on your car’s value. In many cases, you must own your car to qualify. Most lenders will allow you to drive your car as you repay the loan, but if you default on the loan, the lender may repossess your vehicle.
Buy now, pay later (BNPL)
BNPL is another short-term financing solution that doesn’t require a credit check. The primary draw of a BNPL is the ability to finance purchases and pay over time without interest. That said, you could be subject to penalties if you’re unable to make timely payments and overspending is easy. You can make a one-time purchase and repay what’s owed in equal installments across a few weeks or months.
Some BNPL platforms, like Affirm, require a down payment and collect the remaining balance in three installments in weeks two, four and six, following the initial purchase date. Others, including Klarna, let you finance the entire purchase with no money down and collect payments every two weeks. Most BNPL companies do not report to credit bureaus.
How to shop for no-credit-check loans
No-credit-check loans are offered by a variety of lenders, some of which may be less reputable than others, making it important to do your research:
- Look at the interest rates charged by each lender: Carefully review the rates being charged by the lenders you’re considering. Even if you get stuck with a high APR, comparing lenders will help you identify the lowest, most competitive rates you qualify for.
- Understand all fees associated with the loan: Review all additional fees charged by each lender. With payday loans, for instance, the lender may charge a flat fee per $100 borrowed. This can result in a high equivalent APR, even if there is no interest.
- Read online reviews: Before deciding on a lender, check each lender using websites like the Better Business Bureau (BBB) and Trustpilot to help you steer clear of any scams or companies that have patterns of poor customer experiences.
- Know your state laws: Before signing a loan agreement, make sure that the loan you’re considering is actually legal — that the lender is following the limits on fees, interest and loan terms.
Watch out for scams
If you’re asked to provide money upfront in exchange for a loan, move on. This is a sign of a scam. Additionally, if a lender will not provide information about all fees associated with the loan, consider it a warning sign the lender may not be honest.
Alternatives to no-credit-check loans
There are several alternatives to no-credit-check loans that can give you the funds you need even if you have bad credit or no credit.
Bad credit loan lenders
A number of lenders specialize in extending money to borrowers with bad credit. If you go with a bad credit loan lender, 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, shop with several lenders before applying.
Credit unions
Compared to banks, credit unions often have lenient requirements. As long as you’re 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 picture in addition to your credit. The interest rate they charge on most loans is capped at 18 percent, and the maximum APR for payday alternative loans (PALs) is 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’re generally more affordable than traditional payday loans and repayment terms range from one to six months. If you apply for a PAL, a credit union will ask you for proof of your income to make sure you can repay your loan.
Secured loans
Secured loans are protected by collateral, which is something valuable you own. Collateral can be a physical asset, such as a house, car, boat or even a cash deposit. Since secured loans are less risky for lenders, you can get approved for one with bad credit. The caveat is that the lender may seize your collateral if you default on your loan.
Secured credit cards
You may not get approved for a traditional unsecured credit card with bad credit. That’s where secured credit cards come in — some issuers do not do credit checks for them. When you take out a secured credit card, you make a cash deposit that’s typically equal to your credit limit. The credit card issuer will take your deposit if you don’t repay your bill.
Bankrate loans editor Pippin Wilbers started his credit-building journey with a secured credit card, using it for small everyday purchases. “Paying it off immediately helped me build a good credit score relatively fast, even with a small starting credit limit,” he says.
Co-signer loans
If you’re ineligible for a loan on your own, ask a trustworthy friend or family member to be your co-signer to apply for a loan with you. You’re more likely to get approved and qualify for a lower personal loan interest rate if you have a co-signer with good or excellent credit. Just make sure you repay the loan so you can improve your credit, and don’t leave your co-signer responsible for the payments.
Bottom line
No-credit-check loans can be a tempting option if you are pressed for cash and have a spotty (or non-existent) credit history. But many lenders charge interest rates well into the triple digits, so you will need to carefully consider before signing.
Research and consider all alternatives available to ensure you are making the best financial decision for your circumstances.
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