If you have bad credit, getting a loan can feel almost impossible. No credit check loans can help. Even if you have NO credit, you can sometimes be completely cut off from the benefits of the financial system. So what are your options to borrow money? No credit check loans can help you get cash quickly, but you might want to think twice. The terms can be harsh, and interest rates steep. Before you sign up for a no credit check loan, here’s what you need to know.
What Is a No Credit Check Loan?
When most people think of personal loans that don’t require credit checks, they think of payday lenders or title lenders. And these types of businesses certainly fit the bill. You can find them on almost every street corner offering “fast cash” or “no questions asked” loans. A no credit check loan is pretty simple in concept – it’s a loan that doesn’t require the lender to pull your credit history to qualify. Sometimes you could use your income or an asset such as your car as collateral for the loan. Unfortunately, since the entire American financial system seems to revolve around your credit score, the no credit check loan category tends to attract the seedy underbelly of opportunistic lenders. They know there aren’t a lot of options available, and the risk of default is high, so they offer short-term loans with high-interest rates and fees.
What Your Credit Score Means
Before you pursue a payday loan or other no credit check option, make sure you understand what your credit score is, and what it means. Your credit score can range from 300 – 850, with 300 being the worst and 850 being a perfect score. The ranges that get you the best interest rates or loan options are a little fuzzy, but as a general guideline, you can use the following:
- 720+ Excellent – You have access to most financial products with the best terms and lowest interest rates.
- 690 – 719 Good – You are still considered a low credit risk, but may not get the best rates available.
- 630 – 689 Fair – You may not qualify for some loans or credit card offers, and your interest rates will be high.
- <630 Poor – At this level, you will have a hard time qualifying for any kind of financing based on your credit score.
How to Check Your Credit Score for Free
You are legally entitled to get a free copy of your credit report once a year from each of the three major credit bureaus (Transunion, Equifax, and Experian). You can do this easily online at https://www.annualcreditreport.com. Even if you think you have bad credit, it never hurts to check. You may be surprised at your credit score, as relatively minor things like a late payment from several years ago dropping off your report can make a big difference.
What If I Have Bad Credit?
If you do have a bad credit score (generally below 630 out of 850), there are still some relatively simple things you can do to raise your credit score, such as:
- Dispute any errors you find on your credit report
- Pay off small balance loans
- Keep your credit balance as a percentage of total available credit low
- Limit new credit inquiries
If you have a borderline score, with a few tweaks and a little time, you can raise it significantly and be able to access more favorable loans. However, if you’re in an emergency and don’t have time to work on your credit score, you may have to move on to the no credit check options available to you.
No Credit Check Loan Options
Here are some of the most common loan options if you have bad credit and can’t get funding from a traditional bank.
Most payday lenders will loan you money based on your employment status. They can give you an “advance” on your next paycheck, generally around $100 – $500. When you get your next paycheck, you will pay off the balance and any interest or fees. However, the payday loan industry has a history of being incredibly predatory. Payday loans have incredibly high interest rates, often 300% or more APR, and charge exorbitant fees to rollover your loan to the next pay period if you don’t have the cash available when the balance comes due. While I would recommend staying away from payday loans entirely, if you must use them, make sure you have a very short term need, and you will have the funds to pay it off quickly.
Pawn Shop Loans
If you have something of value, such as jewelry or collectibles, you can take it into a pawn shop in exchange for a loan against the value of the item. Most states regulate the interest rates of pawnshop loans, but they vary widely between 2% per month to 30% per month or more. Also, the pawnshop can charge “service fees” for holding your item, which can significantly add to the cost. By shopping around, you should be able to get a good idea of the rates available in your area. Like payday loans, pawnshop loans are generally short term (around one month) loans.
Almost as ubiquitous as payday loans, title loans allow you to take a loan out against your vehicle title. With a title loan, if you own your car free and clear, you can use it as collateral to get a loan. As with other types of “bad credit” loans, title loans usually come with short time frames and high interest and fees, but no credit check. If you can’t pay off the loan as agreed, you are at risk of losing your vehicle, which can be a huge downside if you need that vehicle to get to work and earn an income.
Loans from Relatives or Friends
Thinking outside the box, another source of cash without a credit check would be by taking a loan from family or friends. If you go this route, the terms and structure of the loan can be very flexible – whatever you and your friend decide. However, the downside is that you are putting your relationship at risk by mixing business with family. If something happens and you can’t pay back the loan on time, it could do long term damage to your relationship.
There are many other types of asset-based loans where the lender considers the collateral you are putting up rather than the strength of your credit. You could go to a bank and get a line of credit based on the value of a stock portfolio, family heirloom jewelry, or real estate. For example, in my real estate investing business, I’ve been able to buy a property and invest in real estate with no money through the use of hard money loans. Hard money lenders generally don’t care about your income or credit score. They only care about the value of the property they are lending against. If you can find a fantastic deal, you can get it financed with little or no money out of pocket.
Alternatives to No Credit Check Loans
While it is possible to get a no credit check personal loan using the methods above, the terms are usually extremely unfavorable. Many lenders prey on the most vulnerable with high fees and penalties that continue to roll over month after month if you can’t pay back the loan. A small $500 loan can quickly balloon into owing $2,000 or more if you aren’t able to pay in full quickly. If you have bad credit and still need access to funds, here are some alternatives that may allow you to borrow at more favorable terms without predatory interest rates and fees.
Credit Union Payday Alternative Loans
If you’re thinking of taking out a payday loan, consider an alternative from a credit union. Most federal credit unions offer payday alternative loans (PALs) if you have been a member for at least one month. You can typically borrow $200 to $1,000 for a term of 1 to 6 months. The annual interest rate generally can’t exceed 28%, which is still high, but much less burdensome than the rates charged by payday lenders.
Home Equity Loans
If you own your home, it can often provide a cheap source of capital. While credit score can factor into the interest rate you get, using your home as collateral makes the loan less risky to the lender. Most banks and credit unions offer these types of loans, and there are generally very few fees to take out a loan if you have enough equity. There are two ways to go about accessing your home equity:
- Home Equity Loan – It’s a typical loan against the value of your equity. For these loans, equity is the difference between your mortgage and 80-90% of the market value of your home. You would get the entire balance of the loan upfront and make payments for a specified term, usually 10-15 years.
- Home Equity Line of Credit (HELOC) – If you don’t need the cash upfront, you can open a HELOC, which functions as a line of credit that you can draw down and pay back as needed over a 10-20 year term. These loans can be an excellent source of emergency funds as you don’t pay any interest unless you have drawn down the line of credit.
Get a Co-Signer
A co-signer is someone who will sign on to a loan with you and personally guarantee the loan based on their credit score. For example, if your spouse has a good credit score, you can have them co-sign the loan with you, and the lender will use their credit score to determine whether or not to approve the loan. That could be an option if you have a good reason that your credit score took a temporary hit (e.g., foreclosure or medical debt). However, if you have a history of defaulting on your loan payments, finding someone to co-sign with you may be difficult.
Conventional wisdom says that credit cards are an incredibly expensive way to borrow money. And that is true, but not nearly as expensive as a payday loan or other no credit check loan. While you will pay high interest, many credit cards will approve you even with bad credit. And if you are looking to build better credit for the future, opening a credit line and paying on time can help boost your score.
Make Extra Money
Most of the time, people looking for quick, no credit check loans only need a small amount—a few hundred dollars to pay the rent or make the car payment. One alternative to taking out a loan is to find ways to make extra money. While you won’t be able to make thousands of dollars in a day, it is feasible to learn how to make $200 fast, which is often enough to help you get to your next payday. Also, while it might take a little longer to start making money if you have a specific skill set, you can start a legitimate side hustle to help bring in extra money and pay the bills. For example, if you have an accounting background, you can learn how to become a bookkeeper from home to help small business clients on evenings and weekends to supplement your day job. The possibilities are endless, and almost any skill – writing, graphic design, marketing, social media – can be turned into a lucrative way to make money and avoid the need to live paycheck to paycheck.
Conclusion – What Should You Do Next?
Now that you understand your options and alternatives for getting a no credit check loan, what should you do next? Without knowing your specific situation, all I can say is, it depends. But for the majority of people, a traditional “bad credit” personal loan through a payday lender or pawn shop is a bad deal if you can work out any other alternative. If you can think outside the box and figure out a way to make a little extra money quickly through odd jobs and side hustles, or use another option like a home equity loan or payday alternative loan, you can save yourself a lot of money and stress in the long run. At the same time, you work to get back on firm financial footing.
This article originally appeared on Your Money Geek and has been republished with permission.
Andrew is the founder of Wealthy Nickel where he writes about all things personal finance. He has a passion for helping people pursue financial freedom through saving money, making money, and building wealth.