No-credit-check loans: a guide

When you apply for a loan, lenders generally look into your credit history as a key part of the loan application process. This is true for most types of loans. However, if you need financing – but your credit score is not the best – you may be wondering whether no-credit-check loans can solve the problem. 

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We’ll go over the different types of no-credit-check loans on the market, so that you can make an informed financial decision. 

Understanding no-credit-check loans

To understand no-credit-check loans, you first need to understand your credit score. Your score is maintained by the different major credit bureaus, such as TransUnion and Equifax. The bureaus calculate your credit score based on your existing debt and how consistent you’ve been about making payments on your obligations, among other factors. A score under 580 is what is colloquially referred to as “bad credit.” You can check your score online for free.  

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Your credit score affects the types of loans offered to you and the pricing you’ll receive on those loans. This is because lenders view your score as an indicator that you’ll remain in good standing and make timely payments on the debt. A lender who doesn’t check your credit will make up for the added risk with other factors, such as much higher interest rates and much shorter terms. They’ll also offer smaller loan amounts. This means that borrowers seeking no-credit-check loans need to be very careful. 

Types of no-credit-check loans

There are a few different types of no-credit-check loans available on the market. Let’s go over a few of the most common types. 

Payday loans

Payday loans are one of the most famous types of no-credit-check loans – but they come with extreme risks for borrowers. These small loans, generally under $500, are designed to help bridge the gap between paychecks – at an exorbitant price. The annual percentage rate of a payday loan can be over 400%. They also come with a very short term – generally no more than a month. 

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All you need to qualify is a steady paycheck, but the costs can spiral out of control quickly – especially if you have to roll the loan over to the following month. 

Title loans

Title loans are another common option that does not require a credit check. Title loans are secured loans, meaning you need to provide a piece of collateral that the lender can repossess if you don’t repay your loan on time. In this case, the collateral in question is the title of your car. 

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To qualify, you need to own your car free and clear. Loan amounts are larger than those available with payday loans – you may be able to get up to 50% of the value of your car. However, the rates are similarly exorbitant – sometimes over 300%. The term of a title loan is typically short – just 30 days. If you are unable to repay when the term is up, the loan may be rolled over into the next month, further increasing the cost. The lender can also repossess your vehicle, which can be catastrophic if you depend on your car to get around and get to work. 

Pawnshop loans

Like title loans, pawnshop loans are backed by an asset, in this case, a valuable item that a pawnshop can sell if you cannot repay your loan. While pawnshop loans are not as harmful as payday and title loans, the terms are short and the interest rates are high – typically around 200% APR. 

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If you do not repay your loan within the term, you may lose the item you put down as collateral. 

Better alternatives to no-credit-check loans

As we’ve discussed, many of the no-credit-check loan options available on the market come with significant downsides for borrowers. So what is someone looking to borrow money without an ideal credit score to do? Luckily, there are options available that provide access to funds with a broad range of credit scores. 

Personal loans

While traditional personal loans can come with strict credit requirements, online lending has opened the door for a more diverse range of borrowers. Peer-to-peer lending companies such as Prosper, Upstart, and Funding Circle make it possible to get a personal loan without a prime score. Borrowers can typically get up to $50,000 with a P2P personal loan. 

Requirements 

• Credit score – Typically 580+, although some companies will go significantly lower
• Income – Verified income, DTI under 50%
• Other – No recent bankruptcy 

Payday alternative loans

Payday alternative loans are offered by credit unions and stringently regulated to protect borrowers, with a max APR of 25-28%. The term is also longer than those offered with a payday loan – up to 12 months. Loan amounts are small – generally up to $2,000. 

Requirements 

• Credit score – Varies by institution, but low credit scores are generally not an issue with PALs
• Income – Steady, documented income
• Other – Credit union membership. There is also a maximum for how many PALs you can get per year. 

Home equity investment

Homeowners without an ideal credit score have options. With a home equity investment (HEI), homeowners get cash upfront in exchange for a share of their home’s value sometime in the future. HEIs come with flexible terms – up to 30 years, and most compellingly, no monthly payments. Homeowners can get up to $500,000 with an HEI. 

Requirements 

• Credit score – 500+
• Income – No income requirement
• Other – Must own a home in an eligible location, with plenty of equity. 

401(k) loan

If your job offers a 401(k), you may have another option for borrowing without a credit check. With a 401(k) loan, the lender and the borrower are effectively the same person. 401(k) loans have a 5-year term, and borrowers pay interest back into their 401(k). Failing to repay on time may come with tax penalties. The maximum borrowing amount is $50,000 or half the account balance, whichever is lower. 

Requirements 

• Credit score – No credit requirement
• Income – Steady employment
• Other – Eligible retirement account that offers 401(k) loans. 

Final thoughts

Borrowers looking for no-credit-check loans have a wide range of options – including both financial products that don’t require a credit check and financial products that welcome applicants with a broad range of credit scores. If you are a homeowner looking for funding, consider a Home Equity Investment from Point. Homeowners with credit scores above 500 can qualify, and there are no monthly payments.

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