It can be difficult to get a loan without credit. The Consumer Financial Protection Bureau (CFPB) calls it “invisible creditand it includes about 26 million people in the United States, or about 11% of the adult population.
If you have credit, the credit score required for personal loans can get a bit confusing. Whether you want a car loan, a loan to fund a new swimming pool, or a personal loan to help cover an emergency, a solid credit score is essential to opening the door to credit.
What loan options are available if I have no credit?
Let’s say you find yourself in a difficult situation and you need a personal loan without credit. Qualifying for emergency loans with no credit score isn’t easy, but it is possible. To obtain a loan without credit, it is useful to know your options.
Below, we’ll talk about how these options can help you get a loan without credit:
- Online lenders
- Banks and credit unions
- Collateral (secured loans)
- Salary advances
- Personal loans for bad credit
- Credit-generating loans
- Family and friends
Some online lenders cater to borrowers who are looking to obtain a loan without credit by considering other factors. They might look at where you attended college, your major, and your grade point average.
Banks and credit unions
If your credit history is virtually non-existent, you might be surprised at your ability to get a no-credit loan from your bank or credit union. As long as you have an established relationship, a bank or credit union can easily check your account to check things like how often you make deposits, if you spend more than you bring in, and generally how much how responsibly you manage your account.
A co-signer with a strong credit rating improves your chances of being approved for a loan. It also increases the likelihood that you will get a low interest rate and attractive repayment terms. Plus, each one-time monthly payment helps you build a positive credit history. Only get a loan from a co-signer if you’re sure you can repay it: if you miss a monthly payment, your co-signer’s credit will suffer.
Collateral (secured loans)
There are two types of personal loans: secured and unsecured. A secured loan means that you promise to give the lender something you own (an asset) if you cannot repay the loan. This is called “collateral pledging”.
It’s usually easier to qualify for no credit personal loans if you can offer collateral.
Collateral can be anything of value, for example: a retirement account, a car, a savings account, or jewelry.
Some employers offer salary advances. These are loans repaid by deductions from future paychecks. Often, these programs are run by third-party lending companies and offer all employees the same interest rates and terms, regardless of their credit scores.
If you need to get a loan without credit and your employer offers you a payday advance, it can benefit you in two ways:
- You’ll get the loan you need when you need it.
- This can help you establish your credit score.
Before taking out a loan, make sure you understand how much it will cost you in interest and fees. Also find out about the repayment terms and make sure you can afford the monthly payroll deduction.
Personal loans for bad credit
As we mentioned, having a thin or no credit score is not the same as having a bad credit score. Yet the lenders willing to take a risk on borrowers who need to get a loan without credit are often the same lenders who take a risk on borrowers with poor credit.
With personal loans for bad credit, gives you the opportunity to make full and timely payments that will increase your score. Just be careful with interest rates – rates on these loans can be high.
To get a loan without credit, you may want to consider a credit generator loan. With a credit builder loan, you apply and are approved for a small loan. You make payments on the loan, including interest, and those payments are reported to the credit bureaus. Only after all payments have been made do you have access to the money you have borrowed.
A credit-building loan is a good option if you’re trying to build credit. This is not a good option if you need money right away.
Family and friends
It’s no secret to family and friends that you’ll need help getting a loan if you have no credit. They will understand if you haven’t had time to build up a credit history. If you find yourself in an emergency, seek help from those who care about you.
If they agree to lend you money, treat it as you would any loan. Draft an agreement stating:
- How much do you borrow
- How often will you make a payment
- How much will the payment be
- When the loan will be fully repaid
If you are struggling to pay the bills, find out about available social assistance. You might be surprised what you are entitled to. Some starting points:
- SNAP Benefits
- Housing assistance
- State welfare
- Local food banks (some have no income requirements)
- The Children’s Health Insurance Program
If you are a tenant, ask your landlord about rent relief. Some landlords are willing to move the rent due date, defer rent from this month to next month, or give rent relief in exchange for help around the property (such as landscaping, repairs office or cleaning).
And if you own your home, ask your mortgage lender to refrain. If you’re struggling financially, you may qualify for mortgage forbearance, which means you won’t have to make short-term mortgage payments. The long-term impacts of this decision vary by lender, so make sure you understand the specifics of what you’re agreeing to.
Is a loan without a credit check a good idea?
Payday loans and title loans are types of loans without a credit check. It’s usually best to avoid these loans, but if you’re out of financial options, a no credit check loan could help you make ends meet.
The best way to approach a no credit check loan is to make paying it off your first priority, even before paying off credit card debt. Loans without a credit check often charge 400% or more interest. They are extremely expensive compared to credit cards and other alternatives.
Let’s say you need to fill a prescription, but payday is still a few days away. Going without a prescription can be dangerous, so you take out a payday loan to fill the prescription. Then you pay it back when your paycheck is deposited.
Be careful: No credit check loans trap some people in a borrowing cycle. In this situation, the borrower cannot afford to repay his payday loan, so he takes out another payday loan to pay off the first one. If you can’t repay your payday loan with cash, consider other ways to repay it, such as:
- A credit card with balance transfer
- Payment by credit card (if the lender accepts it)
- Payday advance
- One of the other alternatives above
This can help you avoid being trapped into paying the extreme interest rates of a payday loan.
The bottom line
Looking for a loan without credit is neither fun nor easy. Obtaining a loan in this situation is however possible. If you’re looking to get a loan without credit, browse through these recommendations, find the one that best suits your situation, and go for it. If you manage the loan carefully once it’s in your hands, you’re well on your way to building a strong credit rating.
Still have questions ?
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Loans and credit scores