If you’re in need of quick cash for an unexpected expense, but you have a poor credit score, it may be difficult to get the loan you need. Having a bad credit score certainly makes life more difficult. There’s no guarantee you’ll be approved for loans. And if you are, they may carry higher interest rates. 

Traditional loans, and even credit cards, usually cater to those with fair-to-good credit scores. Those who don’t have a strong credit history are often in need of a loan for bad credit when an emergency comes up. But if you’re not careful when choosing your loan, you could potentially run into issues like fraud, bad customer service, or exceptionally high interest rates. 

Many people seek alternatives, and loans with no credit check may be a good option to give your financial health the boost you need. Don’t let the name trick you though, as lenders don’t just give money away without getting to know who they are lending money to! 

Instead of performing a hard credit check, lenders use an alternative way of checking one’s creditworthiness—one that won’t affect your credit score. As a result, the loan application process is much faster.

Why Do Banks Perform Credit Checks?

Banks and lenders check your credit history to determine your creditworthiness and ability to repay any potential loan. That way, they can assess the risk of lending you money. Most loans you apply for will have a process to check your credit history, whether it’s a bank loan, line of credit, student loans, or sometimes even a payday advance loan. 

People with lower credit scores usually get loans with higher interest rates, as lenders see them as a potential risk. Many people with a credit score below 580 have trouble securing a loan at all. Plus, every time they make an inquiry and get denied it’s recorded on the credit report and their credit score can suffer. 

But even if you’ll have a bad credit history you’ll be able to apply for a bad credit loan with certain lenders. In contrast to traditional hard checks, many lenders today perform “soft checks” that don’t impact your credit score. This allows them to check your financial history and credit reports with no consequences to your actual score.

When you apply for a no-credit-check loan, your application will be evaluated based on your employment, current loans, and other credit data. This paints a picture of your financial situation without performing a hard check of your credit score. And while it may be possible to get a loan while unemployed or dealing with a bad credit score, it won’t be easy. And finding no-credit-check loans that are safe and affordable may be difficult as well.

How Do Loans With No Credit check Work?

The application process for a no credit check loan is straightforward, and you can either do it online or with a storefront lender. When dealing with a technology-forward lender, your loan request may be approved in just a few hours or even minutes. In many cases, you can apply for online loans and if you need money today you can, in many cases get the money the very same day.

To apply for a loan, you will be asked to provide information about your employment, and bank details (to verify your income). Direct online lenders use this data, along with recent payment history and overall credit utilization, to determine the amount and the terms of the loan you qualify for.

Types of No Credit Check Loans

There are two types of loans offered by direct lenders that don’t require hard checks: payday loans and personal loans.

Payday Loans

A payday loan is a popular—but risky—short-term borrowing option. These types of loans can be approved within minutes, and are meant for unplanned, urgent situations. 

Payday loans are available online and are repaid from your upcoming paycheck. They often come with a two-week term. Payday loans usually have high interest rates because of the short-term nature of the loans. Payday loans may seem like a good idea depending on your financial situation. But, odds are you can find a more practical choice through an installment loan.

Payday lenders market themselves as a good option to care of unexpected expenses, but the high interest rates and short repayment period make them very difficult to repay on time. And if you can’t repay on time, the lender will likely add more fees and interest to extend the loan. It’s wise to avoid payday loans in general, as they can lead to late payments, and a cycle of debt that’s difficult to escape. You can get a better repayment schedule without the additional costs through other types of lenders. 

Personal Installment Loans

Personal installment loans come with longer terms, lower interest rates, and are typically considered a safer and more affordable option than payday loans. Plus, many personal installment lenders will offer a better customer experience than your average payday lender. 

The total amount borrowed, along with interest and other fees, is paid back over a series of monthly payments. That way, you don’t have to repay everything at once. And lower monthly payments are much easier to manage without stretching your budget. Personal installment loans are also more affordable, on average, than most payday loans. And you can usually find a personal installment lender that will offer you a loan without a hard credit check. Which means you won’t need a perfect credit score to be approved. 

Do yourself and your bank account a favor, and choose a safer alternative to high-cost payday loans. And if you’re considering a bad credit installment loan, use our personal loan calculator to help with your budgeting.

Title Loans

This is another example of a no-credit-check loan. A title loan is an expensive, secured loan that requires the borrower to offer up collateral in order to receive funds. The collateral in this case would be the title to your vehicle. But if you can’t repay the loan, the lender may sell your vehicle in order to recover the funds. 

Title loans may be an easy way to secure guaranteed cash when you have a low credit score, but they still come with high costs and higher risks. If you need your vehicle for work or taking the kids to school, it’s probably not wise to risk losing it.

Advantages of No Credit Check Loans

No-credit-check loans have an easy application process and are typically approved very quickly, allowing you to get a loan without any worry about your credit history. There are usually no prepayment penalties, or fees for early payments. Plus, paying back your installments on time helps build your credit score as your payment activity is reported to major credit bureaus. This way, you can improve your credit history, improving your chances of an even better deal next time you take out a loan.

Disadvantages of No Credit Check Loans

The main drawback of no-credit-check loans is the potentially higher cost associated with them. A loan with no-credit-check can come with a higher interest rate, so make sure to check the interest rates from your specific lender. There is also a limit to how much you can borrow depending on the lender and state regulations, so you may not be able to get the amount you want. No matter what type of loan you’re considering, it’s important to research the lender and the terms. This could save you a lot of money in the long run.

The Bottom Line

There are lots of different types of loans out there. And they all come with different terms, conditions, and interest rates. It’s crucial to know what those terms are before they have your signature on the contract. The most important thing to remember when you’re shopping in the marketplace for a loan is to do your research. Whether you’re looking for a no-credit-check loan, home equity line of credit, peer-to-peer lending, or some other type of financing, research is the key. 

Choosing your lender based on thorough research is the smartest way to shop. So ignore that flashy payday loan advertisement and search for a lender that can actually improve your financial situation.

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