No Credit Check Loans
Updated: November 19, 2023 Author: Paul Gillooly
Key takeaways: In reality there’s no such thing as a no credit check loan. UK lenders are required by law to conduct affordability checks on applicants and this includes a hard credit check.
If you have been declined for a loan or finance agreement, you may have scoured the internet in search of ‘no credit check loans.’ It can be incredibly frustrating sifting through the results and finding out that lenders require some form of credit check.
In the UK, to be authorised by the Financial Conduct Authority (FCA) to provide finance, a lender must conduct a credit check. There are of course, rogue traders who operate outside of the remit of the FCA, but you will find these lenders to be predatory and you will have no consumer protection.
What Are No Credit Check Loans?
Occasionally you will find lenders who are regulated by the FCA and offer no credit check loans. In truth, these lenders will often offer loans with no hard credit check.
Hard Credit Check vs Soft Credit Check
A hard credit check leaves a semi-permanent mark on your profile for two years. After the first year, the hard credit check will not generally impact your credit score unless you have multiple hard credit checks in quick succession.
Soft credit checks do not appear on your credit profile if other lenders credit score you. A misconception is soft credit checks do not appear on your credit profile at all; in fact, they are accessible by credit reference agencies but don’t affect your credit in the eyes of lenders.
You can also view how many soft credit checks you have on your credit profile.
Soft credit checks do not negatively impact your credit score, so you can have multiple soft credit checks on your profile without noticing a drop in your credit score.
Overall, you should only use hard credit check services for finance applications where you can be relatively certain of being accepted. In all other cases, you should use lenders who utilise soft credit checks.
The Rules on No Credit Check Loans in the UK
The FCA has strict guidelines for any business offering loans or any finance to customers. The regulations stipulate that ALL approved lenders must conduct a credit search and assess the affordability of any loan they offer.
Companies may offer no credit check loans in two ways, first by operating illegally and outside of the FCA remit or by offering commercial business loans which are unregulated.
In cases where a company offers a no credit check loan to individuals and does not perform a credit check, they are an illegal loan company. As mentioned the only exception to this is if a lender extends borrowing to a business.
Soft Search and Eligibility Checking
Lenders who offer ‘no credit check loans’ under the FCA remit will be conducting soft credit checks on your profile. It is fair to say these companies are misleading customers when they state they do not perform credit checks.
These lenders or brokers tend to be dealing in the adverse credit market and attract customers who are concerned about their credit score. When searching for ‘no credit check loans’ your results will be filled with payday loans, bad credit loans and short-term loans.
The loans offered by these companies do tend to have more favourable lending criteria with poor credit scores being considered and tighter financial situations being accepted.
The types of loan available with flexible lending conditions are much riskier for loan providers. You should expect a higher interest rate compared to traditional loan providers to reflect this risk.
Bad Credit Services – Eligibility Checkers
If you are struggling to obtain finance, using a bad credit service can be invaluable as they will assess your eligibility across a range of lenders and use soft credit checks. These soft credit checks allow a bad credit service to know whether a lender will extend borrowing when the loan goes to application.
Making an Application for a Bad Credit Loan
Once a bad credit service has identified a good loan product for your credit profile and circumstances, they will ask if you wish to proceed to an application.
During the application process it is common for lenders to require a hard credit check. You should bear this in mind so you are not applying to multiple loan companies at the same time.
The good news is that if the bad credit service pre-vetted you for the loan, your chances of obtaining the money are greatly increased and they will have already conducted a soft credit check with your chosen lender.
No Credit Check Payday Loans
Payday loans are very short-term loans designed to tide you over until your next pay day at which point you repay the loan. Due to the high interest rates, they are not suitable to carry over although some payday lenders offer rollover options.
Rollovers make the payday loan provider more money because you owe the money for a longer period and the interest accumulates. If you are considering a payday loan you should ensure you have the means to clear the debt quickly.
As with bad credit loan providers, payday lenders are required by the FCA to conduct both a credit check and an affordability check.
If you find a payday lender offering a loan without a credit check (even a soft credit check) you should avoid them at all costs as there is a high likelihood, they are acting illegally. You may be tempted to arrange the finance knowing this, but you should be aware you have no consumer protections or rights with illegal lenders.
This means if an illegal payday lender behaves in a predatory way, you have no way of complaining to the financial ombudsman.
No Credit Check Bad Credit Loans
The same factors that apply to no-credit-check payday loans also apply to any other companies offering no-credit-check loans.
The best course of action to take if you are concerned about your credit score and need a loan is to approach a bad credit eligibility checker.
By using an eligibility checker, you are dealing with authorised and regulated financial companies. What’s more, your credit score will be evaluated initially using a soft credit check, and a hard check will only be conducted once the eligibility checker is extremely confident you can get the loan.
To summarise, there are unregulated (and often predatory companies) who may offer no credit check loans. You can avoid these by using an eligibility checker to find regulated loans without impacting your credit score.