Getting a loan when you have a low credit rating can be challenging. Plus, hard credit checks run by lenders can further lower your credit score. At such times, a 'no credit check loan may seem like an enticing option.
FCA approved lenders don't lend money without carrying out a formal credit check on applicants. Thus, unfortunately, no credit check loans are just a marketing gimmick designed to lure partially informed customers. And yet, there is a myriad of online lenders offering no credit check loans. We can't help but wonder how this product works.
Through this article, we'll shed some light upon how exactly no credit check loans work and whether it is safe to borrow this financial product or not.
What is a no credit check loan?
No credit check loans are essentially personal loans for people with a low credit score looking to borrow money without a credit check. Multiple individual credit checks cause damage to the credit score, which is why people resort to no credit check loans, thinking they could avoid a credit check.
However, all FCA approved lenders are obligated to assess an applicant's creditworthiness by running a hard credit inquiry. Once you apply for a loan or accept a pre-approved offer, the lender will perform a hard credit check on you before lending the money.
So, when a lender or broker advertises no credit check loans, they certainly don't imply that they will not perform a formal credit check. It's just that the lending decision of these lenders does not rely on your credit score.
In cases wherein you apply for a no credit check loan with a below-average credit score, the lender will typically carry out a credit check. But, they may not let your credit score drive their lending decision. They may, however, set a relatively higher interest rate for you. So you may qualify for the credit, but not for competitive rates, due to your credit score.
FCA authorized loan brokers like Oyster Loans can help you compare loan offers from multiple lenders to find a suitable loan. Oyster Loans has a panel of FCA approved lenders who offer various loan options for people with a bad credit score.
What type of loans without a credit check can I get?
You can borrow both secured and unsecured no credit check loans, according to your financial circumstances. Below are some types of loans that are available in the no credit check category:
- Guarantor loans: Guarantor loans are essentially personal loans with a guarantor. Your lender might ask for a guarantor if you have a low credit rating. A guarantor is a friend or family member who agrees to partake in a loan's obligations with you. Now, if you fail to keep up with your repayments, the onus of settling the loan will fall on your guarantor. Lenders usually prefer guarantors with a stellar credit history and stable income.
- Personal loans: This is a form of unsecured credit wherein you don't need to provide collateral to secure the loan. Personal loans can be a convenient way of borrowing money since they aren't earmarked to solve a specific problem. However, since these loans are unsecured, so the interest rates may be comparatively higher. Just how high these rates get depends on your credit score. While lenders may agree to lend you money even with a low credit rating, you may not be able to qualify for competitive interest rates and loan terms. A personal loan, if used responsibly, can be a great way of improving your credit score. So, ensure to make timely loan repayments.
- Secured loans: You can borrow a secured loan by securing an asset as collateral. Most people use their property or vehicle as collateral against secured loans. Since these loans are secured by collateral, the interest rates are relatively low. You may not be able to enjoy competitive rates with a low credit score. The amount of money that you can borrow through a secured loan depends on your equity in the property. However, secured loans come with significant risks. So, if you're unable to keep up with repayments, the lender can foreclose and repossess your property to recover their loss. This is why understanding California Auto Repossession Law (if you reside there), for instance, can help you know your rights and legal protections if you face vehicle repossession. Similar protections exist for foreclosure cases or disputes over pawned assets, making legal knowledge crucial when navigating these situations. Therefore, you must ensure timely repayments towards your secured debt. If you have bad credit, you should learn more about debt consolidation vs credit repair before applying for a loan.
It is essential to understand that while the aforementioned financial products are a great opportunity for people with a poor credit history to secure loans, these lenders will still perform a thorough credit check on applicants. However, your credit score may not necessarily guide the lender's decision.
Should I borrow payday loans – no credit check?
Payday loans are high-cost short-term loans designed to cater to urgent cash needs. When you are hit with an emergency, with no savings to rely on, payday loans may seem like the only feasible option. However, these loans have exorbitant interest rates and APRs – exceeding beyond 300%, which push you further into a debt cycle.
The rampant growth of payday loans called for the FCA's intervention, after which it started regulating this high-cost short-term credit by imposing price caps to safeguard the consumer's interest.
How to apply for no credit check long term loans?
- Work out a suitable loan amount: Assess your income and expenses to work out how much you can afford.
- Self-assess your credit: You'll know what to expect while applying if you self-assess your credit score beforehand. Besides, checking your credit score before applying for loans will buy you some time to improve your score by disputing errors in your credit report.
- Complete the application procedure: Fill out a quick online application form with accurate details and information pertaining to your loan. You should apply meticulously, with utmost attention, since lenders may mistake a human error for identity fraud and impose charges.
- Compare loan offers: Compare pre-approved offers and choose one that fits your financial checklist. It is important to compare both the interest rates and APRs to find the most suitable loan offer. Check if the lender is levying an additional charge.
- Disbursal: Once you choose a loan offer, the respective lender will run a hard credit check into your profile. After completing the contractual formalities, the lender will disburse the money into your account using wire transfer. Use the funds responsibly and repay the instalments on time.
Tips to improve your credit score
- Pay your utility bills and credit card balance on time.
- Get yourself registered on the electoral roll.
- Regularly check your credit report for incorrect items or unidentified enquiries.
- Avoid exceeding 25% of the borrowing limit of your bank overdraft facility.
- Set up direct debits to ensure timely repayments.
- Keep a low credit utilization ratio – less than 30%.
- Try and settle a County Court Judgment within 30 days.
Conclusion
No credit check loans may seem like a practical solution to your credit problem. However, even no credit check lenders run a hard credit check on your credit score. You may not be able to enjoy low-interest rates with a low credit rating. So, spare some time before applying for loans and use it to work on your credit score.
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