What is a no-credit-check loan?

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While most lenders will pull your credit report before deciding whether to approve you for a loan, some offer no-credit-check loans. Since loans that don’t require credit checks usually come with sky-high interest rates, it’s best to stay away from them.

What is a no-credit-check loan?

A no-credit-check loan is a loan that doesn’t require a credit check. You may be tempted to apply for one if you don’t have the best credit and believe you can’t get approved for other types of financing products. Some examples of no-credit-check loans are:

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.

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.

Auto title loans

Auto 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.

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.

Why are no-credit-check loans not a good idea?

While no-credit-check loans may seem like great options at first glance, you should avoid them if possible. Their exorbitant interest rates lead to high payments, which can steer you into a cycle of debt and wreak havoc on your credit. You may find that a no-credit-check loan does more harm than good for your long-term financial situation.

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.

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, you can save on interest and significantly reduce the overall cost of borrowing.

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Written by
Anna Baluch
Contributing writer
Anna Baluch is a personal finance freelance writer from Cleveland who enjoys writing about debt, mortgages, student loans, personal loans and auto financing.
Edited by
Associate loans editor