A personal loan is a great way of getting some extra cash for
Because a personal loan is unsecured, the majority of lenders require good credit to be approved.
In this article, we will explain how personal loans work and if they’re available without a credit check.
What are Personal Loans
A personal loan is an unsecured loan typically between $5,000-$40,000. Repayment terms vary but are usually between 24-60 months. The interest rate on these will vary depending on the borrowers’ credit score.
Lenders want to see a borrower with a history of making their payments on time. Without knowing the likelihood of being repaid, they don’t know the risks, so if a loan is extended, the interest rate would be very high.
Getting a personal loan with no credit history is very difficult, if not impossible. An alternative is a credit card; some are available with limited or no credit history. A secured credit card is another alternative that will help you build credit.
Types of Loans with No Credit Check
If a lender is willing to give you a loan without checking your credit, then the terms and rate will be extremely high. These loans include payday loans and car title loans with annual interest rates as high as 400-500%.
Payday loans are the most common no credit check loan. Instead of checking credit, the loan is tied to the amount of your paychecks. These are short-term loans, usually for less than $1,000 that must be paid in full within a couple of weeks. No payment plans are available.
Payday loans are highly scrutinized because the interest charged is between $15-$20 for every $100 borrowed, amounting to 500% interest annually. They should be used in emergencies only; relying on payday loans can lead to financial devastation.
How to Improve Your Credit Score
The first step to getting a personal loan is to increase your credit score. Ideally, you want at least a 640 credit score before applying however, there are some lenders that require just a 580 credit score for a personal loan. Before applying, you should do what you can to maximize your score.
Pay down credit card debt – Your credit utilization ratio makes up 30% of your overall credit score. Carrying high balances will severely damage your credit rating. Pay down your card balances to less than 20% of your credit limit.
Dispute negative account information – The credit bureaus allow consumers to dispute anything they believe is inaccurate on their credit report. They have 30 days to investigate the dispute and either verify it or remove it.
Make your payments on time – The biggest factor in determining your credit score is your payment history. It accounts for 35% of your overall score. Set up auto-pay if you find yourself regularly forgetting to pay your bills on time.
Getting a personal loan with no credit check is highly unlikely. It’s actually more likely if you have bad credit, at least a 580 credit score, to be approved for a loan.
If you have limited or no credit history, you should look into getting a secured credit card to start building credit.
Before applying, you should do whatever is necessary to improve your credit score. This will not only improve the chances of being approved for a loan but will also get you better loan terms.