Bad Credit? How to Borrow Without Taking Out No-Credit-Check Loans

One of the most stressful parts of applying for a new loan or line of credit is the credit check. If your repayment history is less than stellar, you could face higher interest rates or not get approved at all.

If you know your credit is bad, no-credit-check loans can sound like an attractive option. You can quickly get the money you need without worrying about being denied because of your credit score.

However, there are several disadvantages to no-credit-check loans. First, you may be required to provide collateral, meaning that if you lapse on payments, you have to surrender some of your property. They can also be more expensive in the long run than your standard personal loan. Not only are the interest rates significantly higher, but they can also carry expensive finance fees. In addition, you may have limited options for repayment.

So, if you should avoid no-credit-check loans but you still need funds, what are your other options? We’ll explain exactly why we advise against no-credit-check loans and what you can do to secure funding instead.

What is a no-credit-check loan?

Even if you’ve never heard the term no-credit-check loan before, you may be familiar with payday loans or personal installment loans. These loans are easier to obtain than personal loans because the lender does not consider your past repayment history when deciding whether to lend to you. Instead, they will want to see that you bring in a consistent income, such as a paycheck directly deposited into your account twice a month.

Usually, a no-credit-check loan lender will approve you for an amount that your regular income could cover. This is why they are called payday loans—because the idea is that you would be able to pay the loan back the next time you get paid. On paper, this doesn’t sound so bad until you look at the repayment terms.

1. Most personal loans have a repayment period of a few years. However, no-credit-check loans may need to be repaid in a few weeks or even a few days. 
2. When you repay a personal loan, you make smaller monthly payments. However, when you borrow a no-credit-check loan, your lender usually expects you to pay in one lump sum at the end of your repayment term, plus a financing fee.
3. Speaking of financing fees, no-credit-check lenders don’t charge interest like personal loan lenders do. Instead, they usually charge a fee.
4. If you fall behind on payments for a personal loan, you may have to pay a late fee that will increase your monthly minimum payment. However, if you cannot repay your no-credit-check loan by the repayment date, you can roll it over into a new loan for an additional fee. Unfortunately, this is how many people find themselves trapped in debt to payday loan companies.

Typically, no-credit-check loans are offered by online companies and marketplaces, not reputable financial institutions.

Is a bad credit loan different from a no-credit-check loan?

Many people turn to no-credit-check loans because they believe their credit is too poor for a reputable bank or credit union to lend to them. However, many financial institutions do offer personal loans to borrowers with credit scores between 580 and 699, which is considered ‘fair’ credit. You can borrow significantly more money with bad credit personal loans and pay it back over a much longer period. A bad credit personal loan will still usually have a higher APR than a loan to someone with good credit, but the terms are significantly better than no-credit-check loans. While someone with good credit may be able to take out a loan with an APR in the single digits, a bad credit personal loan will usually carry an APR in the double digits. No-credits-check loans, however, always have an APR in the triple digits.

Qualify for a personal loan without good credit

What if your credit score is 579 or lower? Fortunately, there is still another option: finding a cosigner with good credit.

A cosigner will vouch for you to the lender that you will repay your loan. The cosigner will be equally responsible for the debt from the loan, which will show up on their credit reports and yours. If you fail to make payments, both of your credit scores will suffer, and both of you can be sued for repayment.

It may be difficult to find someone willing to take the risk of cosigning a loan for you. However, if you get a cosigner, plan for what will happen if you can’t make payments ahead of time. Not all lenders allow co-signers, so you will also have to find one who does.

How to avoid scams and predatory lenders

Before you take out a loan from an online marketplace, it is best to do your due diligence on the lender. Look for reviews from past customers and marketplace trust organizations. If you can, compare quotes from different lenders, or at least compare the rates and terms for each loan. Consider how much interest and any fees will add onto the principal balance of the loan and if you can realistically repay that amount in the time allowed. Also, research any recourse options the company offers if you can’t make payments and if they charge any fees for paying your loan back early.

Credit card fraud and identity theft pose a huge risk to your credit score. Even if you’ve always reliably paid back your loans, a thief could easily impact your ability to get loans with favorable terms in the future. Start your membership with iLock360 to protect your credit today.