No-credit-check loans can be tempting if you have less-than-stellar credit and don’t qualify for traditional loan products. These types of loans do not require a review of your credit score but they can be risky and are generally not well regarded since they tend to come with extremely high interest rates and origination fees.

What is a no-credit-check loan?

A no-credit-check loan does not involve a lender conducting a hard credit check on your credit score or reviewing your credit history in order to approve your loan application. 

Instead, the application review process and decision may be based on other factors such as your employment status, income, bank account history or in some cases the collateral that you’re providing. For applicants who have subprime credit, or a spotty repayment history a no-credit-check loan can be an appealing option.

Before proceeding with this type of loan however, it’s important to do your homework and understand exactly what you’re signing on for.

Loans that don’t require a credit check

There are different types of loans that don’t require borrowers to go through a credit check to get approved for the funds.

Payday loans

Payday loans are small, short-term loans you can pay back the next time you get paid. In most cases, you’ll repay them 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. Although these loans can be a lifesaver in case of an emergency, they should be avoided, as they can have APRs as high as 400 percent.

No-credit-check installment loans

With no-credit-check installment loans, you borrow a lump sum of money and repay it over time via fixed monthly payments or installments. They usually come with larger borrowing amounts than payday loans and can be used to cover just about any expense.

Car title loans

Car title loans are secured loans that use your car as collateral. You give the lender your car title in exchange for borrowing cash. The amount you can receive will depend on the value of your car.

Most lenders will allow you to drive your car as you repay the loan. If you default on a car title loan, the lender may repossess your vehicle. Just like payday loans, title loans should be a last resort, as the average auto title loan has an APR of about 300 percent.

How to shop for no-credit-check loans

Why are no-credit-check loans a bad idea?

While no-credit-check loans may seem like a great option, some of them, like payday and car title loans, should be avoided at all costs. Their exorbitant interest rates lead to high payments, which can steer you into a cycle of debt and wreak havoc on your credit. Some lenders also tack on additional fees that make it even harder to put your finances in order.

Besides that, because many of these types of loans do not build your credit — you lose the opportunity to have your payments contribute to increasing your credit score. In a nutshell, no-credit-check loans can lead to financial consequences that can haunt you for years to come.

Can I get a loan with bad credit?

You don’t have to turn to a no-credit-check loan if you have bad credit. Fortunately, there are many lenders that accept borrowers with bad credit. They may look at factors other than your credit when determining whether to approve you for a loan, such as your income, employment history and debt-to-income ratio.

What are 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. Here’s a brief overview of them.

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 relatively low interest rate for someone with less-than-stellar credit.

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. Plus, the interest rate they may charge is capped at 18 percent.

Payday alternative loans

Payday alternative loans (PALs) are small, short-term loans offered by some federal credit unions. They’re generally more affordable than traditional payday loans and come with longer repayment terms. 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 or boat. It may also be a cash deposit. Since secured loans are less risky for lenders, you can get approved for one with bad credit. The caveat, however, 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.

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 and apply for a loan with you. You’re more likely to get approved and qualify for a favorable 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 not leave your co-signer responsible for the payments.

The bottom line

If you have bad credit or no credit and need to borrow money, don’t resort to a no-credit-check loan. Instead, explore the alternatives at your disposal and think about the pros and cons of each. By choosing an alternative, such as a loan from a bad credit lender or a co-signer loan, you can save on interest and significantly reduce the overall cost of borrowing.

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