You can get a personal loan without any credit checks at all, but no-credit check loans are limited. They come with very high interest rates, and, add to that, registered lenders are prohibited from lending money without a credit check. Borrowers are vulnerable to falling into a debt trap if they use these loans because they might wind up borrowing more than they can afford to pay back.
It is suggested that you improve your credit score first if it is not urgent to borrow money. Consider other alternatives, such as borrowing money from your friends and family to meet your expenses.
How no-credit check personal loans work
A few lenders are out there who will be willing to give you the nod for bad credit check loans, but they will charge very high interest rates. Payday loans are also a type of no credit check loans. When you apply for these loans, a lender will make a lending decision based on the current income details you provide. They do not need any bank statement to verify the details you provide, nor do they run a credit check. Because these loans involve a very high risk, high annual rates will be charged. They may be up to 500%.
You must have a stable income source to get the nod for these loans. You are not required to put down collateral because the amount is so small, and it is paid back in full on the due date. The maximum amount you can borrow through these loans is up to £1,000; however, most lenders will cap on £500 because of a high default risk.
You do not need even a guarantor to apply for these loans, and hence, they are also called no guarantor loans with no credit check. Lenders do not run a credit check, so they cannot get to know about their past payment behaviour. Chances are the default risk is very high. To mitigate that risk, lenders will charge very high interest rates.
Many borrowers only pay heed to interest rates while using no credit check loans. Because the loan is paid back in full in one go, you do not find them expensive. You think you will settle the whole debt once and for all, and then you will get rid of the debt.
Unfortunately, the payment is quite high, which leaves you with insufficient money to meet your essential expenses. As a result, you get caught in the cycle of borrowing, which throws you into a deep hole of insurmountable debt.
Alternatives to no credit check loans
Here are the alternatives to no credit check loans:
- Bad credit loans
No credit check loans charge very high interest rates. Add to that, not all lenders provide these loans, so you are vulnerable to loan sharks. When your credit history is bad, you should try to avoid borrowing money unless it is urgent. Meanwhile, you should find ways to improve your credit rating. You can do up your credit score by paying your credit card bills, utility bills, rent and other payments on time.
If it is too urgent and you cannot wait for the improvement of your credit score, you should look for bad credit loans. A bad credit loan is much more affordable than a no credit check loan. One of the greatest advantages of bad credit loans is that they are subject to a credit check, so you will more likely get money based on your affordability.
With the help of a credit check, they will know your credit payment history, how much you already owe, and your credit utilisation ratio. All these factors play a crucial role in determining the loan amount. Apart from that, your lender will carefully examine your income sources. If they suspect that your income is not sufficient to meet the debt payments along with your monthly expenses, they will refuse the loan.
This is not the case with no credit check loans. The loan amount is decided based on your monthly income without taking into account your monthly expenses, including other debt payments. This is why no credit check loans are beyond affordability for many lenders.
- Friends and family
If you do not need a large sum of money, you can turn to friends and family. They should be your first choice, provided you promise them they will pay back on time. Make sure that they do not lend you money under an obligation. They should not be running out of money due to loaning you money.
The good part about borrowing from family and friends is that you do not need to pay interest as high as you pay to lenders. Treat their help as a loan. Make sure there is an agreement, and you both parties agree upon the terms and conditions. Even though you are not obligated to pay any interest, you should try to pay a bit more on top of what you borrow to offset the impact of inflation.
Steps to take before applying for a loan
Here are the steps you should take before borrowing money:
- First off, you should check your credit score. Although lenders can approve your application with a bad credit rating, you should check the bare minimum score they accept.
- Evaluate how much money you need and the estimated interest you pay on top of that. Make sure that your budget has the scope to pay back the money without compromising on your monthly expenses.
- Compare loan options before applying to a lender in the first place. Every lender charges different interest rates. Look out for the annual rates and then compare which one suits best your needs.
To conclude
You can get a personal loan with no credit check, but these loans are very small and paid back in full. Because they are subject to a high default risk, lenders will charge very high interest rates. You should avoid no credit check loans unless there is an emergency.
