Pros and Cons: Personal Loans with No Credit Check - Black Enterprise
Black Enterprise magazine Fall 2019 issue

Do you need quick cash? Loans can be extremely beneficial, especially if you have debt in various places. Reasons to consider a personal loan include debt consolidation, big purchases, and unexpected financial costs.

You can use a loan to pay for wedding expenses, big moves, house repairs, or medical bills. Most loans are approved based on creditworthiness. If you don’t have time to improve your credit score, you can apply for a personal loan without getting your credit history checked. It may not be a wise idea, but it is possible.

Various online loan providers will approve your loan application without viewing your credit score. Some require collateral to minimize the lender’s risk. Many include high interest rates. We breakdown the reasons for choosing personal loans with no credit checks and offer alternatives to ensure that you are getting what you need while protecting your financial health.

Pros and Cons to Personal Loans with No Credit Checks

The only benefit to a personal loan with no credit check is that they are fast. If you are a borrower living paycheck to paycheck, with bad credit, and in need of fast money, this type of loan seems ideal. Personal loans without credit checks are essentially a form of short-term bridge financing. The problem is that these loans are very expensive and can be a long-term problem.

Here are some of the many cons to personal loans that don’t require credit checks:

  • Lenders raise their rates to account for all applicants. A lender may approve your application without viewing your credit history, but to ensure that they aren’t putting themselves at risk, they often provide very high interest rates, making it almost impossible for borrowers to pay them off. You could end up paying more than 100% APR.
  • The loans often require a minimum loan amount. If you are in need of a smaller dollar amount to secure your monthly rent fee, you might want to consider alternative options to personal loans. Loans from providers like Capital Good Fund offer anywhere from $300 to $20,000 in loans.

Comparable loans include payday loans and auto title loans. According to the Pew Charitable Trusts, over 80% of payday loan borrowers don’t have enough money to pay their payday loan payments. Payday loans are quick, small amount loans that are due quickly. Typically, these loans are $500 or less and they come with high interest rates and additional fees. Auto title loans, in contrast, use your vehicle as security or leverage in order to get fast cash. Make sure you read all terms and conditions before you secure a loan.

If you can afford to wait and apply for a personal loan that checks your credit even if it’s bad credit then you will likely get a better loan. Even individuals with low credit can get approved for alternative loans.

Alternative Types of Personal Loans

Consider what type of loan you really need. Alternative types of loans include home equity loans, student loans, and secured and unsecured loans. Secured and unsecured personal loans are better than personal loans with no credit checks. Here are the major differences:

  • Secured personal loans require collateral. Secured loans include auto loans and mortgages. One of the benefits of secured personal loans is that when you put an asset up for collateral, you have a better chance of getting a lower-interest rate. Even though the lender could take away your assets if you don’t make your payments, these are great loan options for anyone in need of significant funds, who are sure they can repay the loan to avoid asset forfeiture. Car title loans and payday loans are both considered secured personal loans and we recommend avoiding them.
  • Unsecured personal loans don’t require collateral. When you don’t offer collateral, lenders typically raise interest rates on loans that get approved. A few perks to unsecured personal loans is that the process is quick and you can get a loan without risking a personal asset.

Personal loans can be used for various reasons, including debt consolidation. A loan provider can approve your application, combine all of your debt into one account, and charge one monthly payment. Often, loan interest rates are lower than credit card interest rates which is why you would typically rather pay off a personal lender than a credit card company.

Installment Loans

Unlike revolving lines of credit, which come with credit cards, installment loans require predictable payments. When you take out an installment loan, you know how much you owe and when it is due. Auto loans, personal loans, mortgage loans, and student loans are all considered installment loans.

The perk of an installment loan is that it is easy to pay off in a set amount of time. The negative is that you can’t change the amount you’ve asked for once you’ve been approved so you have to make sure you ask for the right amount at the beginning. This can be difficult to calculate when you are considering a personal loan. What if your wedding expenses increase? What if the home remodel costs more than you expect?

If you take out more than you need, you could end up paying more in the long run. Make sure you are conservative when you apply, and do your best to calculate the exact fee as best as you can. If, for instance, you already plan to spend extra on a DJ or a weekend trip, then add that into your loan request.

personal loans no credit check

(Photo by Dima Sidelnikov on stock.adobe.com)

What to Consider Before Applying for a Loan

Before you start shopping for a loan, think about your long-term goals. Would you like to be debt free in five years? Would you like to buy a new home for your family? Do you want to start a business? Are you prepared to pay off loan debt? Many factors should go into your decision to choose a personal loan.

As you begin shopping for personal loans and comparing lenders, consider the following:

  • Your budget flexibility. If you need to add a new expense to your budget like a wedding, a new vehicle, or a medical bill, you should consider your budget. Can you afford to pay for this unexpected cost upfront? Do you have time to save up? Do you need the extra cash right now?
  • How much money you really need. If you need a loan to pay for something, calculate exactly how much you need. You don’t want to ask for too much or too little.
  • How quickly you need the money. If you need the money within a few days, you can get quick approval for an unsecured personal loan. Some are approved within 24 hours.
  • What type of lender you prefer. For personal loans, there are three types of lenders: (1) credit unions, (2) banks, and (3) online lenders. They all have their pros and cons. Consider which one makes the most sense for you and your needs.
  • What financial goals you hope to achieve. You don’t have to aim for millionaire status. A financial goal can be as simple as saving for retirement, opening a 401k, funding your passion project, or getting your child through college without student loans.

Best Loan Providers for Bad Credit

Finding the right loan provider is just as important as choosing the right personal loan. If you have good or excellent credit, you will likely get approved for a personal loan within days. If you have bad or poor credit, you can still get approval. However, your loan will likely have high interest rates, but this is better than choosing a personal loan that does not require a credit check.

Here are the best online loan companies for individuals with bad credit:

OneMain Financial
Best for repayment options

You can borrow an unsecured loan for $1,500 to $20,000 with various repayment options, anywhere from 24 to 60 months. APR range varies depending on the borrower’s credit score. You could get as low as 18% or as high as 35.99%.

LendingClub
Best for bad credit

You can get up to $40,000 in loans with Lending Club, but make sure you pay attention to the interest rates. You could get a low interest rate or you could end up paying 35.89% APR. One of the best perks to LendingClub is that they allow you to make extra payments outside of your monthly balances, allowing you to pay your loan off early.

OppLoans
Best for optional personal loans

Borrowers with bad credit can apply for personal loans from OppLoans. Bad credit scores are considered 630 or below. Though the interest rates will be really high, you can get access to the funds you need from OppLoans. Because individuals with bad credit are considered risky borrowers, interest rates can be as high as 199%.

You can also get personal loans approved from credit unions and banks. If you already have a bank account with a national bank, you can ask about their personal loan options. Your bank might choose to offer you a signature loan which essentially relies on your signature to prove that you can pay off your loan. Perks of choosing your own bank for a loan is that you might be able to avoid extra fees and get benefits. Just make sure the loan offers fit with your needs.

How to Get a Personal Loan with No Credit History

If you are in need of funds, for whatever reason, but don’t have a credit history, you can still get approved for a starter loan. You can either use a co-signer, apply for a personal loan with no credit check required, or apply for an unsecured personal loan.

If it is your first time building your credit history, you should do your best to pay off your balances or payments every month and ensure that you are paying on time. If you keep a low or no balance and you maintain automatic payments then you can quickly build up your credit which will inevitably give you easier access to loan options.

Optional Ways to Improve Your Credit Score

According to Talaat and Tai McNeely, co-founders of His and Her Money, “Financial freedom is not going to happen overnight. You didn’t get into financial bondage overnight, and you’re not going to achieve financial freedom overnight either. But you can achieve it if you stay consistent.”

Consistency can help you build your credit history and improve your credit score. The are many ways to build credit. You can apply for a personal loan and consolidate your debt and you can have your loan provider focus on credit reporting so the three credit bureaus are updating your history.

Here are some of the easiest ways to increase your credit score:

  • Pay all of your bills and payments on time. This includes your electrical bill, your cell phone payment, your credit card balance, and your personal loan payment. Schedule these payments so you never miss them.
  • Keep your balances low or eliminate them completely. If you have credit cards, you want to make sure that you are paying off your balance or keeping your balances low. The best way to do this is to pay more than the minimum balance and ensure that your balance is less than 30% of your credit limit.
  • Monitor your credit score. Avoid hard pulls, when possible. Hard pulls are often made by employers, credit card lenders, or loan providers. When you close a credit card account, for example, it can impact your credit score so it is better to just leave it open even if you aren’t using it. Soft pulls don’t impact your score. You have the right to a free credit report once a year but some providers offer more.
  • Pay off your debt. This may seem self-explanatory but 300 million Americans have debt, according to a 2018 study. Paying it down is difficult but possible and the quicker you pay it down, the more likely your score is to rise.

If you have the opportunity to increase your credit score before applying for a personal loan, you should. Though personal loans with no credit checks are available, the best ones check credit scores and if you have good credit, you have a better chance of getting a lower-interest loan.

Why You Should Avoid Personal Loans with No Credit Check

If you can get approved for a secured or unsecured personal loan, it is a better option than a personal loan with no credit check. The terms and rates of a personal loan with no credit check are often impractical and absurdly high, making the debt that much more difficult to pay off so make sure you do your research.

Instead of applying for a no credit check personal loan, apply for a bad credit personal loan which will have high interest rates but not as high as no credit check ones. If you have time, work on improving your credit history and paying off debts before applying for any loans.