Your Questions Answered: Can I Get a Loan With No Credit?
It's possible to get a loan with no credit, but there are some stipulations and considerations you should be aware of.
Contributing Writer at Tally
August 11, 2021
When used responsibly, loans can be an advantageous tool. Various loan options can help you pay for an education, car or home improvement projects. They can also help you pay medical bills or refinance high-interest credit card debt.
However, if you do not have any credit, securing lending could be a challenge. Loan eligibility often depends on creditworthiness. Without a credit score, it can be difficult to prove to lenders that they can trust you with their borrowed funds and that repayment will occur.
So, with the odds stacked against you, you may be wondering, “Can I get a loan with no credit?” We’ll answer this question and others to help you understand the process of securing lending if you have no credit.
What does "credit" mean, anyway?
Credit, according to Experian, is "the ability to borrow money or access goods or services with the understanding that you'll pay later."
Examples of credit include:
Lines of credit
When a bank or a lender loans you money, they are doing so with the understanding that you'll pay them back. The more credit you have, the better picture a lender has of your likelihood to repay.
Three major credit bureaus keep track of your information:
From there, you receive either a FICO Score or a VantageScore. Both are three-digit numbers that measure your creditworthiness. The higher the number, the more likely a lender feels confident lending you money.
If you have "no credit," then there is not enough information about your borrowing history for a credit report or credit score.
You may not have credit because you’ve:
Never borrowed money via traditional credit accounts.
Not borrowed money or used credit in the last 14 months.
Recently immigrated to the United States.
However, just because you have no credit does not mean it's impossible for you to secure a loan.
Can I get a loan with no credit?
If you have no credit history — or bad credit — it's possible for you to secure a loan. However, it's important to understand what this entails.
First, there's a strong chance that the only type of loans you'll be eligible for are personal loans. However, you may be able to secure a credit card as well. But, it's not as likely that you'll obtain financing for a mortgage or a car loan. Financial institutions like to see borrowers with at least some sort of credit before signing off on high loan amounts.
Second, you likely won't be eligible for the best interest rates, so you may have a high interest rate compared to other borrowers. You may also have strict repayment terms and conditions. For instance, if you miss just one monthly payment, your lender may have the ability to apply an even higher interest rate.
Suppose you establish a strong payment history and consistently make your monthly loan payments. In that case, you may be able to negotiate with your lender down the road to secure a lower interest rate.
Lastly, note that there may be other stipulations when qualifying. Lenders may require a co-signer, which means someone else is using their credit to vouch for you. Should you default on the loan, the co-signer's credit score would be harmed and they may also be held responsible for paying back the loan. A co-signer doesn't necessarily need to be a family member, but it should be someone you trust.
Similarly, lenders may require you to obtain a secured loan. A secured loan is one in which you put up collateral as backing. Should you default, the bank has the authority to seize the asset. Mortgages and car loans are examples of secured loans. Unsecured loans do not require backing. (There are also both unsecured and secured credit cards and lines of credit available.)
What options are there to build your credit?
If you do not have any credit or have a low credit score, you may be searching for ways to build your credit. First, consider applying for secure lending. Many lenders have a prequalification process so that you can see what options you're eligible for.
Two options you may end up with are:
Credit builder loans
Secured credit cards
According to Capital One, a credit builder loan allows you to “make fixed payments to a lender and then get access to the loan amount at the end of the loan’s term.” A secured credit card is like a secured loan in that you need to put up collateral as backing. Typically, a cash deposit is used as collateral for a secured card.
Once you have a credit builder loan or a secured credit card, you can start building good credit by making on-time payments.
Where should I begin my credit journey?
If you are beginning your credit journey or recovering from poor credit, there are a few things to consider. For one, think about where you get your funding from. It is often easier to secure lending from a credit union than a bank. Credit unions strive to educate and support members, so they may be more flexible with their loan terms and criteria. Plus, they have resources in place to assist you.
Additionally, there are different types of loans available. Online loans could be a good option for those with no credit. Online lenders do not have physical locations and tend to have less stringent criteria for borrowers.
You may want to avoid payday loans and title loans:
Payday lenders charge high fees that equate to having an annual percentage rate as high as 400%. They are also short-term loans that must be repaid in full quickly, typically within two weeks.
Title loans are a type of secured loan and are only available if you own a car. Title loans must be repaid within 30 days, which means they are risky.
What mistakes should I avoid?
As mentioned previously, you want to avoid making late payments. Consistently making late payments can lead to a bad credit score. Plus, it could be harder to get out of debt because your interest rate increases.
You also should be aware of prepayment penalties. Some lenders will not allow you to pay back your loan before a certain period. Otherwise, they will charge you a prepayment penalty. Essentially, you want to make sure that you read the fine print of your loan and know what you're getting yourself into.
What should I consider when selecting a credit card or loan option?
Loan terms and interest rates are two of the primary things you want to consider.
Loan terms dictate things like penalty fees, due dates and origination fees associated with opening the loan.
Your interest rate is the percentage you need to pay for borrowing the funds. The lower the interest rate, the less expensive it is for you to borrow money.
Start building credit today
If you do not have any credit, there's no need to worry. It is still possible for you to secure lending and open a loan. However, to do so, your lender may have stipulations that come with your borrowed funds.
Need a co-signer
Need to put up collateral with your loan
Only receive loan offers with high interest rates
If you’re having trouble securing lending, then you may start by building credit with a credit builder loan or secured credit card.
Looking for more help on your credit journey? Check out credit card payoff app Tally. With Tally’s low-interest line of credit1, you can pay down your existing credit card balances, schedule automatic payments in the app and build your credit history.
1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate.