Consumers with limited to no credit often need help taking out loans. They typically have never used a credit card or don’t have any loan history. As a result, they don’t have a credit score, which lenders use to assess one’s creditworthiness.
A credit score is a rating that quantifies your credit behavior. It’s generally influenced by five factors: a borrower’s payment history, amounts owed, length of credit history, credit mix, and new credit. All of these are seen in your credit report, which lenders check during the underwriting process to determine how likely you’re to repay a debt on time. Overall, the higher a borrower’s credit score is, the higher the likelihood of loan approval.
Alternatively, no-credit borrowers opt for high-interest and unregulated loans, thinking they’re ineligible to borrow from reputable lenders. But this is just an outright misconception. There are far better and more legal alternatives tailored just for them. Check them out here.
Co-Signed Loan
Asking someone to Co-Sign for Loan is the go-to alternative if you don’t have credit. It can also be used if you have a bad credit score, make enough income to secure a loan, and have a lot of debt.
In this loan arrangement, someone else with a credit history will guarantee your debt and sign jointly with you. This person is now called your co-signer, who can be anyone close to you, like your significant partner, family member, or friend.
Remember that your co-signer will have a legal obligation to repay your debt if you fall behind on the payments or default. Hence, be financially responsible and make timely payments. Otherwise, you won’t only hurt your co-signers borrowing power and credit rating but also could damage your relationship with them.
No-Credit-Check Loans
As the name implies, a no-credit-check loan doesn’t require you to have credit. A lender doesn’t have to conduct a hard credit check or review your credit history to approve your loan application. Instead, they base their loan offers and application review process on your:
- Employment status;
- Income;
- Bank account history (if there’s any) and
Moreover, there are several kinds of no-credit-check installment loans. Here are some of them:
Payday Loans
These short-term loans must be paid on your next payday, typically within two to four weeks. While their APRs can be as high as 400%, they can help you financially survive until your next salary.
No-Credit-Check Installment Loans
It’s another type of installment loan that doesn’t require credit checks. It has larger borrowing amounts than payday loans and can be used for almost any expense. One downside is that it’s paid in installments, which translates to implicit high-interest rates.
Car Title Loans
It’s ideal for car owners who can put their cars as collateral for a loan. The loan amount typically depends on your vehicle’s value. A good part is that some lenders allow you to drive your car while repaying the loan. But if you default on your payment, the lender may repossess it. Another, just like payday loans, car title loans’ APR can be up to 300%.
As you notice, the main disadvantage of a no-credit-check installment loan is its high-interest rate. Nonetheless, it can be one of your resorts if you need instant approval for a high loan amount. It can be a great lifesaver in case of an emergency.
Buy Now, Pay Later
Buy now, pay later (BNPL) is a loan alternative that allows you to purchase without paying the cost in full at checkout. Schemes vary, but most BNPLs employ a pay-in-four model. It allows you to pay 25% of the cost first and the rest in three equal payments twice a month.
Most BNPL providers run a soft credit check to confirm borrowers’ details and approve them to sign up, but this check isn’t recorded on their credit score. They usually offer an interest-free delay period. In other words, you won’t pay any interest as long as you pay within the delay period, usually within 30 days to three months.
For no-credit borrowers, other BNPL providers still approve you for a BNPL account even without conducting a credit history check. Most offer low-interest rates but occasionally can find some providers offering 0% interest fees, especially when they see your good bank transactions. They’ll just typically require you of the following:
- At least 18 of age;
- A personal email address;
- Active mobile phone number; and
- Bank details.
Apart from requiring barely any credit check, a no-credit-check BNPL is of great help due to its quick consumer possession. Plus, it’s a highly modernized financing option that involves limited-to-no human intervention, allowing nearly instantaneous approval.
Final Thoughts
Borrowing options requiring no credit check bring greater financial inclusion and access to no-credit individuals. However, as the adage says, with that power comes the need for responsibility. Despite being a no-credit borrower, it’s still important to always ensure timely repayments and put yourself on responsible financial footing.