What Are No-Credit-Check Loans?
You can qualify for no-credit-check loans with bad credit, but you’ll pay a lot for the privilege in interest and fees. Read this before you apply for one.
November 8, 2021
Most forms of credit involve an underwriting process during which lenders verify that applicants can repay their accounts. No-credit-check loans skip that step, which makes them a highly accessible form of financing.
If your credit score has taken some hits, that may sound appealing, but there’s a catch. You’ll usually end up signing up for more interest and fees than you can afford. Before you apply for one, here’s what you should know about no-credit-check loans.
How does no-credit-check financing work?
One of the most problematic aspects of the American credit system is that the way it punishes you for messing up your credit makes it more likely that you’ll continue to do so.
For example, if you miss one of your credit card payments, your credit score will drop. If your credit score drops, you’ll have a harder time getting affordable credit accounts.
Having unaffordable credit accounts makes it more likely that you’ll miss more payments, and then the cycle starts all over again.
No-credit-check financing is the market’s response to this issue. The lenders who offer them don’t check your credit score as part of the application process, so they’ll never deny you for having bad credit.
If you apply for a loan with no credit check, you also avoid adding a hard inquiry to your credit report. Too many hard inquiries can damage your score, so avoiding another one can be a big deal if you're trying to fix your credit.
Because the lenders don’t thoroughly underwrite the applications, borrowers can often apply in minutes and get instant approval. The creditors often even transfer loan funds within a single business day after approval.
The only problem with these loans is that they typically cost far more than is affordable. The lenders who offer them know that most of their applicants don’t have anywhere else to go for financing, and they use that leverage to inflate their prices.
Types of no-credit-check loans
No-credit-check loans typically refer to high-interest installment loans. They generally have principal balances from $100 to around $5,000, and their repayment terms can range from several months to several years.
Note that the exact terms will vary between lenders and between states. That’s because state regulations generally determine what lenders can offer with consumer loans instead of federal law.
For example, SpeedyCash provides no-credit-check installment loans from $3,000 to $4,500 in California, with repayment terms between 24 and 48 months.
Meanwhile, in Texas, SpeedyCash offers installment loans from $300 to $750 with repayment terms that range from five to five and a half months.
No-credit-check loans can also refer to any other type of loan where the creditor doesn’t pull applicants’ credit reports. That includes:
Payday loans: These don’t require a credit check, but they’re notoriously expensive, with annual percentage rates (APRs) well into the triple digits. They usually require repayment in full after two weeks or the borrower’s next payday.
Car title loans: These loans require that borrowers use their vehicles as collateral. They also carry sky-high interest rates and have short repayment terms.
Pawnshop loans: You can get a loan with no credit check from a pawnshop using valuable items like jewelry as collateral. They’ll be expensive but are usually a little more affordable than payday or car title loans.
No-credit-check loans come in all sorts of variations. There are even no-credit-check business loans that provide financing for companies and self-employed people.
Do your due diligence before applying to any of them, though, because they’re almost all expensive.
Why no-credit-check loans are dangerous
No-credit-check loans sound great in theory, but they’re often more trouble than they’re worth. Predatory lenders know that people with bad credit can’t negotiate for financing from a place of strength, so they take advantage of them.
As a result, most no-credit-check loans carry exorbitant interest rates that are about as high as the law will allow.
For example, CashNetUSA offers no-credit-check loans in Texas between $300 and $2,500. The lender has a maximum repayment term of six months and APRs from 225% to 579%. For comparison, the average personal loan has an APR of around 9.41%.
If you were to borrow $2,500 at 579% APR and pay it back in monthly installments over six months, you would end up paying a ridiculous $5,490 in interest over the life of the loan. That’s over twice the value of the principal.
Some lenders may justify this by saying that they’re risking more by working with people who have poor credit, but they charge far more than is necessary to cover the increased risk of default.
Alternatives to no-credit-check loans
Contrary to popular belief, there are ways to get affordable financing even if you have bad credit. Here are some places to start:
Secured credit cards: These let you use a cash deposit as collateral, which becomes the limit on the card. That way, the lender is covered if you ever default. As a result, secured cards are accessible even to people with low scores.
Cash advance apps: People who only need access to a few hundred dollars at a time can use these apps to get advances on their wages. For example, Earnin lets you borrow $100 per pay period without fees or interest.
Credit builder loans: These loans pay their proceeds at the end of the loan term. They’re not helpful for financing purchases, but they’re great for building credit at an affordable cost.
If at all possible, try not to accept any form of financing with an APR that’s above 36%. That’s expensive, but it’s usually doable. It’s the limit that state governments typically impose when they want to outlaw predatory lending.
If your credit card debts are hurting your credit score, consider using Tally† to help pay off your balances. If you qualify for a line of credit, you can consolidate your debts at a lower interest rate and stop worrying about managing multiple payments.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.