No Credit Check Loans for Bad Credit
Updated: August 02, 2024 Author: Paul Gillooly
Key Takeaways: Lenders flaunting no credit check loans for bad credit are peddling a false narrative. Brokers provide loan assistance without a credit check. All lenders are obligated to conduct a credit check before approving a loan. There’s two types of checks though. A soft credit check is invisible to other lenders. A hard check can lower your credit score. Too many of those sets alarm bells ringing on future loan applications, increasing a chance of rejection.
When you’re desperately seeking a loan, having bad credit can seem like an insurmountable obstacle. When your searches lead you to finance options you have no chance of approval for, you can eventually stray into territories where lenders offer loans without a credit check, emphasising that they help people with bad credit. The reality is that they don’t.
Can You Borrow Money Without a Credit Check
Without security, lenders are obligated to conduct a credit check. It can be a soft credit check or a hard pull on your credit files – the ones that show to other lenders. In the case of brokers using this tactic, they don’t run the credit check, but rather refer you to a lender who MAY approve, but they will still run a credit check.
The only way to get a loan without a credit check is through an unlicensed lender, which is illegal, offers no financial protection, and comes with huge risks. All lenders are required to have a Consumer Credit License. Without one, they aren’t authorised. A 2023 survey revealed over 3 million Brits secured loans this way. Know that there are other options! Speciliast lenders look past your credit score and focus on the affordability of the loan, asking, can you afford to monthly repayments?
Can You Get a Loan with Bad Credit?
In all probability, you could be approved. The credit score isn’t the issue. It’s the reason for it that matters. Lenders specialising in loans for people with a poor credit history look into why it happened, consider the reasons, and the length of time that’s passed since. Those are factors that influence the rate of interest they’ll charge.
To avoid damaging customers credit files any further, bad credit lenders do offer loans based on eligibility through a soft credit check only. They still see the entries on your credit report, but consider the application on merit. To minimise rejections, focus on firms offering loans in principle based on an eligibility check. Those run a soft search, see if you have a CCJ, missed payments, any accounts in default and consider your application based on the risk posed to their lending business.
Options for Individuals with Bad Credit
Even if you’re rejected for an unsecured loan, doors don’t close completely. There are other methods of gaining access to funds.
Guarantor Loans
A guarantor loan is when you have a third party that will co-sign the loan agreement. The guarantor then acts as a safety net for the lender, as they will become liable for the payments if you are unable to make them. As the lenders have this additional security with the guarantee, they can be more willing to approve a loan to those with poor credit scores. Casting aside the risk to the lender being removed, consider the risk to friendships with those who agree to bear the burden of repaying someone else’s debt if they can no longer afford the repayments. Money can ruin lifetime friendships and end relationships.
Secured Loans
A secured loan is another way to give a lender a safety net. In this situation, they will require collateral, such as a vehicle, property, or another high-value asset to secure the loan against. The risk to you with this type of loan is losing the asset used as security if you can’t afford the repayments during the loan term.
If you know the repayments can be comfortably made, this can be a good solution. But it’s important to understand the risk you’re taking. Don’t put your prized assets on the line if you know there’s a chance of financial distress during the term of the loan repayments. For example, applying for a motorbike loan over 12-months to get to and from a new job that’s based on a 3-month employment contract with the ‘possibility’ of an extension. Consider affordability for the duration of the loan. Lenders won’t approve on a loan on a ‘possibility’ that you’ll continue to be employed. Most require proof of employment and at least 6-months with the same employer.
Credit Unions
This isn’t an option for everyone, as you need to have a common bond with a credit union, such as living in a specific area or having a certain employer. These are member-owned cooperatives that can offer financial services to communities.
To be approved for a Credit Union loan, membership is required. However, they may be more lenient with their criteria. Most offer a savings club and when you need a loan, they base the amount around a multiple of your savings, i.e. 3x your account balance.
Peer-to-Peer Lending
Peer-to-peer (P2P) platforms match investors with borrowers and accept different risk levels. The platform will run a credit check to let them know your risk level as a borrower, then they use that information to pair with a private investor willing to accept that risk. The cost of borrowing from a P2P platform will be high. One of the leading P2P firms (Ratesetter) was acquired by Metro Bank following a succession of investors withdrawing funds when the economy went into turmoil in 2021, slashing interest rates for investors. The high level of uncertainty already makes these platforms expensive. Add in bad credit to the risk assessments, you can expect high-interest rates.
Your Options If You Can’t Get a Loan
A loan can be seen as a short-term fix to your situation, but it isn’t always the best idea. If you can’t find a lender, then it’s important to look at your situation and analyse what your next steps should be.
Have a Fresh Perspective – Do you really need a loan, or can you cope without one? For example, if you’re struggling with debt, then you can contact your creditors and ask them for help, such as a payment break.
If you want the loan for another reason, look at alternatives. An example would be using public transportation instead if you wanted a car. Getting yourself into further debt you’ll struggle to afford is simply giving yourself a bigger problem down the road.
Debt Solutions – Debt management is an agreement between you and a lender for reduce payment terms. This can be ideal for those looking at options for a debt consolidation loan, or whose expenses are now exceeding their income.
You set yourself an amount you can pay each month and divide it between your creditors. Some will agree to this, but others won’t. A company can do the hard work for you, but they will take a fee, and there is no guarantee of success.
For those with severe debt problems and unable to repay, Debt Relief Orders (DROs) change on the 28th of June to cover debts up to £50,000. Before the 28th of June, 2024, they’re suitable for debts up to £30,000.
Family and Friends – Many people are uncomfortable asking for money from loved ones, but they are a much better alternative. If you have someone that you can trust who can help, ask. Many will, but do go through budgeting to ensure you can repay it. A survey by Starling Bank revealed 33% of Brits were owed over £500 from friends and family with many ashamed to ask for it back. That will put strains on relationships.
Benefits – You may be eligible for financial help through benefits. There is no shame in claiming what you are entitled to. The government website has a signposting service showing where to find benefit calculators, and access to local benefits officers. It’s worth seeing if you are eligible as it can be a huge financial help.
Sell Assets – Do you have anything that you don’t need? Perhaps you have a second car that is barely used, for example. While you don’t want to give away essential or sentimental possessions, it can give you the money you need without lending money.