Personal loans with no credit check: Buyer beware

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In a Nutshell

Personal loans with no credit check may sound great if your credit is in bad shape. But if you’re not careful, you could end up facing steep costs and maybe even a scam — along with no help in building your credit.
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If you have bad credit, getting a loan might feel like it’s impossible. So when you see an offer for guaranteed approval without a credit check, you may be ecstatic.

But personal loans with no credit check often make up for their convenience by charging high interest rates and fees and providing insufficient credit reporting.

In some cases, an offer can even be a scam in disguise. It’s essential to know how to differentiate legitimate lenders from scammers, and to search for other financing options that won’t cost you an arm and a leg.

What are personal loans with no credit check?

Many personal loan companies specialize in working with borrowers with bad credit. But personal loans with no credit check at all are another thing entirely. Lenders offering these loans may consider other aspects of your finances, like proof of regular employment and a checking account, in lieu of a hard credit check. Other lenders may not bother with either.

Hard and soft credit inquiries: What they are and why they matter

Loans that don’t require a credit check include payday loans and auto title loans. Instead of a credit check, they may require information on a bank account, proof of current income and a valid phone number. These loans tend to have short repayment periods, typically ranging from a couple of weeks to a month. Payday loans are unsecured and usually need to be repaid by your next payday. Auto title loans, on the other hand, are secured by the title of your vehicle.

Lenders that offer payday and auto title loans may also provide short-term personal loans that allow at least a few months to repay the debt. These installment loans offered by payday and auto-title loan lenders typically have high interest rates, but you may get as long as a year to repay the debt.

What to watch out for with personal loans with no credit check

Lenders that run credit checks do so to determine how risky of a borrower you are, and they set the loan’s interest rate accordingly.

If there’s truly no credit check involved, it means that the lender is taking on a big risk to give you money, and you can usually expect a high interest rate and fees in return. Payday loans, for instance, can come with finance charges that range from $10 to $30 for every $100 you borrow, amounting to an annual percentage rate of up to 400% (or even more).

With high rates and fees and a short repayment period, you could get stuck in a cycle of debt where you’re forced to take out new loans just to pay off the old ones. If this happens, you may end up paying the same fees and interest charges over and over again without ever getting rid of the debt itself. And with an auto title loan, you could even lose your car if you can’t repay the debt.

In a study from the Consumer Financial Protection Bureau, the agency found that more than 80% of payday loan borrowers reborrow, or roll over, within 30 days, and more than 40% of online payday loan borrowers end up defaulting.

Finally, some lenders that offer these loans won’t report any of your payment activity to the three major consumer credit bureaus. If you end up with a loan that doesn’t get reported, you can’t use it to rebuild your credit history (see our credit building guide for more on this topic).

The loan offer could be a scam

When you’re looking for personal loans with no credit check, you might encounter illegitimate offers. If you have bad credit and need money now, scammers may try to capitalize on your desperation by trying to get your personal information or even your money.

Scammers are less likely to be interested in your credit history, but may still ask for personal information like your Social Security number or bank account details. They may also try to charge you an upfront fee to process the loan paperwork. If any of this happens, beware.

Here are some other signs that the loan offer may be a scam.

  • The loan is offered over the phone
  • The lender isn’t registered to operate in your state (check your state’s attorney general’s office)
  • You can’t find a physical address for the lender
  • You’re being asked to send money to an individual

What should I do if I’ve fallen victim to a personal-loan scam?

If you suspect you’ve given information or money to a scammer, file a police report with your local police department as quickly as possible. Also, consider filing a complaint with the Federal Trade Commission and your state’s attorney general. If your Social Security number is involved, consider freezing your credit reports so the fraudster can’t open new credit accounts in your name. Also, consider using a credit monitoring service to spot potential fraud as it happens.

Better alternatives to personal loans with no credit check

To find a solution for your money needs without resorting to a predatory lender, consider some alternatives.

Payday alternative loans

Some federal credit unions offer payday alternative loans to members who need short-term cash. The terms typically include loan amounts ranging from $200 to $1,000, a repayment term from one to six months, and an APR that doesn’t exceed 28%.

To qualify, you typically need to be a member of a credit union that offers the loans for at least one month.

A co-signed loan

If you can’t get approved for a decent personal loan on your own, you may have better success with a co-signer who has good credit.

But finding someone to co-sign can be difficult if you have a history of defaulting on loan payments. That’s because the co-signer will be on the hook for the debt if you stop paying. So while this can be a good solution, it may not be practical for everybody.

Online lenders

Some online personal loans lenders specialize in working with people with bad credit without charging outrageous fees and interest.

Shop around. See if you can prequalify with different online lenders to compare offers, so that you can choose the best offer available to you.

Bottom line

Getting a personal loan with bad credit can be difficult, but it doesn’t mean you need to resort to loans with sky-high costs. Before you think about trying to get a personal loan with no credit check, consider alternatives that can save you money and prevent you from entering a cycle of debt that can be difficult to escape.

About the author: Ben Luthi is a personal finance freelance writer and credit cards expert. He holds a bachelor’s degree in business management and finance from Brigham Young University. In addition to Credit Karma, you can find his wo… Read more.