What Are No Credit Check Loans?
No credit check loans are loans that do not require a hard credit check for approval. No credit check lenders use other information to determine your creditworthiness, such as:- Your employment status
- Your income
- Your bank account transactions
- Your borrowing history
How to Identify Loan Scams
While there are legitimate no credit check loan providers, there are also scam artists looking to take advantage of people with bad credit. Here are some red flags to watch out for:- Guarantees of approval: Even lenders that don’t require a credit check will want to review other indicators of creditworthiness before issuing a loan. If a lender guarantees that you’ll be approved for a loan despite your income, employment status, and credit history, it’s likely a scam.
- Unregistered lenders: A reputable lender will list the states where it is licensed to conduct business. To verify this information, you can contact your state attorney general’s office.
- Requests for prepaid debit cards: Some scammers will ask for prepaid debit cards to cover upfront fees for issuing a loan. While legitimate lenders may charge an origination fee, this amount is deducted from the loan amount. If someone asks for a prepaid debit card prior to issuing a loan, it’s likely a scam.
- Lack of transparency: Reputable lenders communicate all fees in clear and transparent terms. If a lender is vague about borrowing costs, you might want to look elsewhere.
- Pressure to act: Some scam artists will set artificial expiration dates for loan offers to pressure you to apply. Most reputable lenders will give you a few weeks to decide.
- Signs of a fake business: Websites that aren’t secure, a lack of physical address or other contact information, and nonexistent reviews on third-party websites are all signs of a possible scam.
Types of No Credit Check Loans
When searching for a no credit check loan, you’ll be faced with several options, and some are riskier than others. Here’s what to expect from each type of loan.Payday Loans
A payday loan is a short-term, small-dollar loan that is designed to be repaid out of the borrower’s next paycheck. You typically only need proof of income and a bank account or prepaid card to qualify. But the average APR on a payday loan is a whopping 391 percent, which makes these loans difficult to repay on time. As a result, the CFPB found that about 80 percent of payday loans get renewed or rolled over, which leads to mounting interest and fees. For 22 percent of loans, borrowers end up paying more in interest and fees than the original loan amount. Furthermore, payday lenders do not typically report to the three major credit bureaus, so taking out a payday loan probably won’t help you improve your credit, but you should check with your lender to make sure. On the other hand, if your payday loan debt is sold to a debt collector, that information may appear on your credit report and negatively impact your score.Title Loans
A title loan is a type of short-term, no credit check loan that is secured by the title of your vehicle. To be eligible, you’ll need to show proof of income and either own your vehicle outright or have sufficient equity. These loans typically come with a 15 or 30-day term, and you can borrow as much as 25-50 percent of the value of your car. Title loans can be extremely risky. Not only do they come with an APR of about 300 percent, but they also require you to give up the title of your vehicle as collateral. That means if you default on your loan, your lender can repossess your car. In fact, about one in five title loan borrowers end up having their vehicles repossessed, according to the CFPB.Pawn Shop Loans
A pawn shop loan is another way to get fast cash without a credit check. These loans are secured by something of value that you own, whether that’s fine jewelry, a TV, or a musical instrument. The average loan amount for a pawn shop loan is about $150 and the typical term is 30 days. Unlike with payday and title loans, you won’t need to show proof of income or have a bank account or prepaid card to get a pawn shop loan. You’ll just need to present identification and provide an item of value. The typical APR for a pawn shop loan is about 200 percent, but varies by lender. If you’re unable to repay the loan, the pawn shop can sell your item. Defaulting on a pawn shop loan won’t hurt your credit, but you’ll lose your possession after only receiving about 25-60 percent of the item’s resale value.Installment Loans
Some installment loans are available without a credit check. These loans come with less risk and greater rewards than payday, title, or pawn shop loans. Interest rates can still be higher than traditional loans or credit cards, but longer terms make it less likely that borrowers will default. Furthermore, some installment lenders report your on-time payments to the three major credit bureaus, so repayment will actually help you improve your credit score. That means you’ll have access to traditional loans with lower interest rates in the future. To be eligible for an installment loan, you’ll typically need to show proof of income and have a checking or savings account.Loans from Family and Friends
Asking family and friends for help might be the least costly method of borrowing funds without a credit check. While it can be difficult to admit you need financial help, a loan from a friend or family member comes with greater flexibility and might help you avoid fees that can make repayment difficult. To avoid harming your relationships, you should commit to a contract for repayment just as you would with a traditional loan. Make sure to re-evaluate your budget so you’ll have enough money to devote to repaying your friend or family member.Alternatives to No Credit Check Loans
If borrowing from friends and family isn’t an option, there are several no credit check loan alternatives you can consider. While these loans require a credit check, it’s possible to qualify even with a subprime credit score.Credit Union Loans
Interest rates on traditional loans from credit unions can’t exceed 18 percent, and many bad credit borrowers may be able to qualify. Small-dollar loans, credit-builder loans, and starter credit cards are all products offered by credit unions that can help you improve your credit score. To get a loan from a credit union, you’ll need to be a member, and to qualify for a membership, you’ll need to meet certain requirements. You may need to live, work, or worship in a certain geographical area or be a member of certain groups to be able to join.Payday Alternative Loans
A payday alternative loan is a product offered by some federal credit unions that is designed to provide a less costly alternative to payday loans. Interest rates are capped at 28 percent and the application fee can be no more than $20. There are two types of payday alternative loans:- PAL: PAL loans come in amounts ranging from $200-$1,000 and terms of one to six months. You must be a member of a credit union for at least a month to qualify.
- PAL II: PAL II loans were approved in 2019 and come in amounts up to $2,000 with terms ranging from one to 12 months. You can apply for a PAL II loan immediately after joining a credit union.
Co-Signed Loans
If you have bad credit but still want to achieve a low interest rate, one option is to ask a creditworthy friend or family member to co-sign a loan with you. This allows you to achieve a lower interest rate based on what the co-signer would qualify for. There are some things to watch out for when co-signing a loan, however. Both the borrower and the co-signer are responsible for repayment, so if you default on a co-signed loan, it will hurt your co-signer’s credit. As with any loan, you should ensure you have the capability to repay the co-signed loan before applying.Secured Loans
Loans secured by collateral such as equity in your vehicle or home are generally easier to qualify for. However, there’s always a risk you’ll lose your possession if you default. Common types of secured loans include:- Auto equity loan: If you have equity in your vehicle, you can borrow money by offering your car as collateral. Credit requirements may be less strict and interest rates are generally lower for poor credit borrowers than with unsecured loans. The main drawback is that there’s a risk of losing your vehicle if you default.
- Home equity loan or home equity line of credit (HELOC): If you have equity in your home, you can borrow a lump sum (home equity loan) or take out a revolving line of credit (HELOC) that is secured by your home. Interest rates are generally less than 10 percent, but you risk losing your home if you default.