A personal loan can be an excellent tool to help you do anything from consolidate debt to cover a financial emergency. Unfortunately, it can often be difficult to qualify for a loan with poor credit.
The good news is there are personal loans available that don’t require a credit check. As a result, even borrowers with a poor credit history (or no credit history at all) can qualify. Proceed with caution, though, since you may encounter predatory lending practices, which often include high-interest rates and fees.
Here’s what to know about getting a personal loan with no credit check.
If your credit profile has made it hard for you to get a conventional personal loan, you may be looking for other options. Several types of loans skip the credit check altogether, but they tend to come with some risks.
It’s important to understand the advantages and risks of a no-credit-check loan before you apply for one. It’s convenient that these loans are available to borrowers that may otherwise struggle to get a loan. But some lenders use predatory lending practices, so the loans come at a cost.
First, no-credit-check loans tend to have high-interest rates. As we mentioned, payday loans can easily have interest rates of around 400%, and car title loans aren’t much better.
In addition to the interest charged, you may also be subject to high fees. Most lenders charge late fees, which can be harder to avoid if money is tight. Additionally, lenders may require origination fees, which can be between 1% and 10% of the loan amount.
Finally, no-credit-check loans often don’t help you build credit and increase your credit score. The lenders that don’t require a credit check typically don’t report payments to the credit bureaus, so even making regular payments on time wouldn’t move the needle on your score.
If your score is considered poor or fair, and the downsides of no-credit-check loans put you off, you still have options. Below are a few types of loans available to those with bad or no credit that aren’t as expensive as some of the loan types listed above.
Some traditional personal loan lenders that run credit checks still offer loans to borrowers with poor credit.
These loans do tend to have interest rates that are considerably higher than other loans. For example, you might end up paying around 35%. That being said, the interest rates on these loans are still much lower than those on payday loans.
What’s more, these lenders will report your payments to the credit bureaus, meaning you’ll be able to boost your credit score by paying off the loan. Finally, you may be able to find lenders that don’t charge some of the fees that no-credit-check lenders do.
If you’re a member of a credit union, you might have easier access to a personal loan, even with a poor credit score. Credit unions are not-for-profit organizations, unlike traditional banks. Because of that, credit unions tend to have more lenient policies and loan requirements.
Additionally, credit unions — because they don’t have to provide a profit for shareholders — can offer their members lower interest rates and lower fees than other lenders.
As a bonus, credit unions are often local financial institutions that have physical branches and in-person services. So if you aren’t sure if you’ll qualify for a loan, you can sit down with a loan officer and find out what you would need to qualify.
Many lenders allow you to add a cosigner to your loan to increase your chances of approval. Rather than solely taking your financial situation into account, the lender will also consider your cosigner’s income and credit score.
So if your borrower has a good credit score, you may get a better interest rate — and, therefore, lower monthly payments — on your loan.
Keep in mind that if you fail to make the loan payments, your cosigner is on the hook for them. Not only that, but your late and missed payments are also likely to impact that person’s credit score. So it’s important that you only ask someone to cosign your loan if you’re confident you can make your loan payments.
If your goal in applying for a personal loan is to boost your credit score, then it might be worth considering a credit-builder loan.
When you take out a credit-builder loan, you don’t actually receive the money like you would with a traditional loan. Instead, the lender deposits the money — usually an amount ranging from $300 to $1,000 — into an escrow account.
Over a term typically ranging from six months to 24 months, the borrower makes loan payments on the principal, as well as any interest and fees. At the end of the loan term, the full loan amount that had been in the escrow account should be deposited into your bank account.
Like other personal loans, the lender will report your payments to the three credit bureaus to help you build a credit history and boost your credit score.
The structure of credit-builder loans eliminates the risk for the lender. After all, they aren’t really giving you money. Instead, they’re basically returning the money you paid them. As a result, you may be able to qualify for one of these loans with bad credit.