Building a credit history requires having a credit card or loan from a financial institution. But it’s difficult to get started if you can’t open one of these accounts with any existing history on your credit report. When you need cash from a personal loan but have a thin credit profile, a no credit check loan may seem like an appealing choice. But before you sign the loan agreement, make sure you know what to look for so you don’t become overwhelmed with high-interest debt.
Can I get a small loan if I don’t have credit?
It is possible to take out a small loan to help cover unexpected expenses, even if you don’t have a substantial credit history. However, you’ll likely be subject to lower loan amounts and higher costs. Most experts recommend avoiding small loans like payday loans and title loans, since the risk strongly outweighs the benefits. In fact, according to Experian, many states have imposed laws that restrict or outright ban these types of financing options.
No matter what type of small loan you’re looking for, always check to make sure the payments fit with your budget. Debt.org notes that no matter how low or high your interest rate may be, a personal loan is not a good idea if you can’t afford to make the payments on time. It may be in your best interest to talk to a nonprofit credit counselor about loan options and how to budget paying it off.
No credit check loans to consider
It’s important to carefully review any no credit check personal loans, since they frequently come with enormous APRs, high fees and short repayment terms. Here are two options to consider that may have more consumer-friendly options.
OppLoans offers no credit check loans that use other criteria as part of the application process. The lender reviews your employment status, income, bank account and financial history instead. Rates are still high, ranging between 99% and 199% APR. But that’s still lower than most payday lenders, plus you can spread out your payments for as long as 24 months rather than the standard 14 days associated with payday loans.
RISE Credit is another option to consider. Rates start at 50% APR and go up to 299% APR. But as you build a positive history of on-time loan payments, you are rewarded with a better rate over time. The maximum loan amount is $ 5,000 and you have up to 26 months to repay the borrowed funds.
[ Read: No Credit Check Loans: How They Work]
No credit check loans to avoid
When your loan options are limited because of low or limited credit, you may be tempted to consider alternative financing such as payday loans or auto title loans. But both of these types of loans come with major pitfalls that can worsen your financial situation. The National Foundation for Credit Counseling (NFCC) warns that payday loan rates can go as high as 600% APR. It’s common for borrowers to get stuck in a cycle of debt by having to request extensions as their loan balances skyrocket.
Auto title loans are similarly expensive and get out of hand with the option to roll over an outstanding balance into a new loan. Plus, as the Federal Trade Commission points out, the lender can eventually repossess your car if you fall behind on payments. The lender may even require you to install a GPS to quickly find your car, or add starter interrupt devices so that you can’t drive the car until you make a payment.
How to establish credit if you have no credit history
Even though you’ve learned how to get a loan without a credit check, it’s still important to build your credit history so you qualify for better terms in the future. Follow these expert-approved steps.
Open a secured credit card
A secured credit card doesn’t give you access to money you don’t already have, but it can help you build a better credit score in the long run. You must deposit money into an account before you can use the card, which serves as collateral against the borrowed funds. As you make charges on your card, be sure to make your payments on time and in full. Otherwise, you’ll begin to accrue interest. Equifax recommends finding a secured credit card that reports to all three credit bureaus. Once you establish a positive payment history, you can upgrade to an unsecured credit card.
Become an authorized user
If appropriate, ask a close relative or friend to add you as an authorized user on their credit card. Rather than being the primary cardholder, you’ll be a secondary user and don’t have the responsibility of making payments on the account. The benefit, according to Experian, is that the age of the account is added to your own credit report. The downside is that missed payments and high balances can hurt your credit score, even if you’re not the one racking up credit card debt.
Sign up for credit score boosts
Experian, one of the three major credit bureaus in the U.S., now offers a credit score boost that can help improve your score based on your utilities payment history. Typically, these payments aren’t reported to the credit bureaus. You do need to connect your bank account to prove your payment history and only lenders using the FICO Score 8 model will see this increase.
Alternatives to loans when you don’t have credit
- Credit unions: You may find small loans at your local credit union, especially if you have some funds in a checking or savings account.
- Credit builder loan: A small loan amount is deposited into your account. Once you prepay the loan, you’re able to access the funds.
Getting money with no credit
There are a few other options to explore if you need cash fast but don’t have any credit. In addition to asking friends or family for help, also explore available aid from local non-profits or churches. If your financial emergency stems from medical costs, talk to your provider about a payment plan. Sometimes you won’t even be charged interest when you sign up. Finally, once you recover from this financial emergency, start setting aside funds to prepare yourself for the next time a need pops up. Even if you can only put away a few dollars a week, you’ll be in a much better position further down the road.
Personal loan FAQ
Yes, but expect lenders to check your income and employment status as well.
Payday lenders rarely check your credit with a hard pull. But there are several disadvantages that make up for the convenience. These include exorbitant fees and linking to your bank account for automatic withdrawals when your loan comes due.
In addition to online lenders, consider a secured credit card or credit builder loan. These options help build your credit so you can qualify for better terms in the future.
Too long, didn’t read?
Few lenders offer no credit check loans with favorable terms. Use high-interest loans sparingly and try to avoid them altogether. Also take the steps to build your credit history so you can access better financing opportunities.
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