No Credit Check Loans: Reasons to Avoid Them and the Alternatives Available

When you need instant cash, it might be tempting to take whatever loan you can—including a no credit check loan. But before taking this or any other type of loan, you should understand the loan you’re getting, and how it might affect your financial future. 

If you have bad credit or don't have a credit score and are looking for a loan, you might be tempted to take on a no credit check loan, but before you do make sure you understand all the risks involved. 

 Installment Loans Payday LoansAuto Title Loans
Terms of LoanNo collateral or property to guarantee the loanNo collateral or property to guarantee the loanRequires a car as collateral
Interest RateHigher than 200%400% APR but can be more25% in interest over 30 days
Payment ScheduleSet in fixed amounts over a scheduled periodMust be paid back within a few weeksMust be paid back within 30 days

No Credit Check Loan?

First, let's examine what defines a no credit check loan. These loans offer fewer or no formal credit checks in comparison with traditional bank loans. People with bad credit commonly turn to these types of loans, especially those without savings.

Payday Loans

Payday loans are predatory, meaning they prey on people who need immediate cash and have no reliable method of repaying the loan. Almost half of payday loans – 46% –  aren't ever repaid, creating an endless cycle of loans. Unfortunately, the type of lender that offers no credit check loans, whether installment or payday, are often the type of lender whom borrowers should be wary of as they profit whether the borrower repays the loan or not. 

One of the reasons so many payday loans aren't repaid is their exorbitant interest rates, sometimes as high as 500%. For example, a loan of $1,000 may incur $150 in interest in just 2 weeks, and $3900 in interest for the entire lifetime of the loan—just for the benefit of that original $1000.

Auto Title Loans

Another option for immediate cash is an auto title loan, but borrowers will need to offer their car as collateral. With higher interest rates than credit cards and a short payment plan, often within 30 days, title loans that aren't repaid can be rolled over to the next month, doubling the number of fees. Defaulting on a title loan means that the lender can repossess your car. For these reasons, title loans are also considered predatory, and they have been banned in a number of states. You should consider them only as a last resort. 

Installment Loans

No credit check installment loans are advertised as a loan that provides immediate cash without a credit check. To compensate for not being able to check the borrower's credit history, however, borrowers usually end up getting lumped with much higher fees and interest rates than traditional bank loans. 

Although this type of loan allows borrowers to repay the loan at a fixed amount each month over an extended period, the interest rates are still high enough to make it difficult to pay back and ensure lenders that they will be profitable regardless of whether or not the loan is repaid. 

As installment loans have a better reputation than payday loans, however, lenders sometimes try to market these loans as installment loans, using the same predatory tactics as the payday loans. Experts refer to installment loans as "payday installment loans." 

Reasons to Avoid No Credit Check Loans

Taking on a no credit check loan can involve a lot of risk, so before you take one on, it's important to ask yourself the following questions:

  • Do you need the money?

A no credit check loan should be your very last option. An emergency medical situation is a legitimate reason to consider taking this type of loan; a vacation or purchasing new furniture is not.  

  • What is the interest rate?

No check credit loans offer higher interest than traditional bank loans so in general they really don't pay off in the long run. Spend time researching the different options to find the loan with the lowest interest rate possible. 

  • How soon do I need to pay it back?

Predatory loans such as payday and title loans are designed to be difficult to repay, and the same applies to no credit check loans. They often need to start being repaid in a matter of weeks, while loans from reputable lenders are designed to be repaid in regular, fixed amounts according to a borrower's budget.  

  • Will paying it back on time help build my credit?

One of the ways people build good credit is by paying loans on time. If you took a particular type of loan due to bad credit, wouldn't it be a waste of an opportunity not to use the loan to build good credit? Good lenders will report on-time payments to the credit bureaus. Predator lenders will offer no such opportunity.  

Alternatives to No Credit Check Loans 

While it may be difficult to get approved for a traditional bank loan with bad credit, you don't have to accept a loan from a predatory lender. Many banks, credit unions, and online lending companies provide loans to people with bad credit

No Credit vs Bad Credit

Not having a credit score means that you don’t have a credit history, whereas bad credit indicates a history of poor financial management. If you don't have a credit score then taking out a no credit loan is a good way to build your financial reputation, however,  as previously stated, there are lots of risks involved with these types of loans. Bad credit loans, which are often used as damage control, are usually unsecured, meaning they don't take collateral and are therefore less risky. However, to compensate, they charge higher interest rates and it's important to keep this in mind. Be careful to check the interest rates and fees to ensure these lenders are not predatory, and that you can realistically pay back this loan over a reasonable amount of time.

Secured Personal Loans 

Secured loans require collateral or property to guarantee the loan, such as a home or a car. Defaulting on these types of loans means that the lender can repossess your property. Reputable lenders have interest rates that cap at 35.99%, and they will also report any loans paid back on time to the Credit Bureau, helping to build your credit. 

Co-Signed Loans

Banks and online lenders may offer loans with better terms if you have a cosigner with better credit. The cosigner has to pay the debt in the event that you default on the loan, and it also affects his or her credit. This is a good option as it takes some of the burden of you, but it's important that you fully trust the person you ask to do this for you and that you understand it could affect your relationship. 

Credit Union Loans

Credit unions also offer loans to borrowers with poor credit at a lower rate than other types of loans. While they often check a borrowers' credit score and debt-to-income ratio before approving the loan, they offer much lower interest rates. They also typically offer repayment schedules of between 5-10 years, giving borrowers time to pay back the loan. 

Building Better Credit for the Future 

While predatory lenders are never the only option for people with bad credit, having good credit definitely expands your loan options. Good credit takes time to build, and can be especially difficult to climb out of a bad credit situation if it’s due to financial mistakes from the past. In that sense, bad credit is worse than no credit, but no credit shouldn't be confused with good credit. While having no credit may mean a clean slate in terms of your financial reputation, it still means you could have a hard time getting a loan in an emergency. If you have no credit you need to start building better credit to receive the loans with the lowest interest rates and fees for when you need cash in the future.

Advertising Disclosure

This site is a free online resource that strives to offer helpful content and comparison features to its visitors. Please be advised that the operator of this site accepts advertising compensation from companies that appear on the site, and such compensation impacts the location and order in which the companies (and/or their products) are presented, and in some cases may also impact the rating that is assigned to them. To the extent that ratings appear on this site, such rating is determined by our subjective opinion and based on a methodology that aggregates our analysis of brand market share and reputation, each brand's conversion rates, compensation paid to us and general consumer interest. Company listings on this page DO NOT imply endorsement. Except as expressly set forth in our Terms of Use, all representations and warranties regarding the information presented on this page are disclaimed. The information, including pricing, which appears on this site is subject to change at any time.

GOT IT

Top 5 Personal Loans

Must Reads