No-credit-check loans: What are they and how do they work?  

No-credit-check loans do not require a review of your credit score, which can make them convenient if you have bad credit. But they can be risky and often have extremely high interest rates and origination fees. As a result, you should only consider using these loans if you’ve exhausted all other options.

In many cases, it may be better to look into getting a bad credit personal loan or a bad credit loan alternative.

What is a no-credit-check loan?

Lenders do not conduct a hard credit check or review your credit history with a no-credit-check loan.

The application review process and decisions for no-credit-check loans are based on other factors, such as your employment status, income or bank account history. You may even borrow based on collateral if you apply for a secured loan. A no-credit-check loan may be an appealing option for applicants with subprime credit or a spotty repayment history.

However, lenders can charge significantly higher interest rates and additional fees. The average interest rate on a personal loan for borrowers with fair to bad credit is 17.8 percent to 32 percent. No-credit-check loans, on the other hand, may have annual percentage rates (APRs) of over 100 percent.

Although a lender won’t check your credit, you can expect high APRs, as you are viewed as a riskier borrower by seeking out a loan that doesn’t consider your credit profile. Review your loan contract carefully and understand exactly what you’re signing on for before you borrow.

How no-credit-check loans work

Once approved, a lender requires you to repay funds from the no-credit-check loan over a specified term. You repay the loan plus interest just like any other loan.

Unlike a loan that requires a credit check, some types of no-credit-check loans don’t report repayment history to the three major credit bureaus — Equifax, Experian and Transunion. This means a no-credit-check loan might not help you build credit. But if you default on the loan and it’s sold to a debt collection company, it may be reported to the bureaus and cause significant harm to your credit.

Why no-credit-check loans are a bad idea

While no-credit-check loans may seem like a great option, some of them — like payday and car title loans — should be approached with caution. Exorbitant interest rates lead to high payments, which can steer you into a cycle of debt that can negatively impact your credit. Some lenders also tack on additional fees that make it even harder to put your finances in order.

And because many of these types of loans do not build your credit, you lose the opportunity to have your payments contribute to increasing your credit score. Simply, no-credit-check loans can lead to quite a few negative financial consequences.

Types of no-credit-check loans

There are different types of loans that don’t require borrowers to go through a credit check to get approved for the funds. Consider what you need the funds for and if there are alternative options that could be more beneficial to your finances.

Cash advance apps

Cash advance apps offer a solution to hold you over until the next paycheck. You can typically borrow between $50 and $1,000 against your next paycheck. When it’s time to settle the advance, it’s typically withdrawn automatically from your account.

Terms are often better than those available for payday loans. Instead, you’ll pay a flat fee per transfer and a membership fee to access the service in most cases. Some of the best early payday apps skip the flat fee and allow you to contribute a voluntary tip instead.

Payday loans

Payday loans are small, short-term loans you can pay back the next time you get paid. Most are payable within two to four weeks.

These no-credit-check loans are designed to provide you with quick cash to hold you over until your next paycheck. Although these loans can be a lifesaver in case of an emergency, they should be your last choice because some state regulations allow APRs higher than 400 percent.

No-credit-check installment loans

With no-credit-check installment loans, you borrow a lump sum of money and repay it over time through fixed monthly payments. They usually come with larger borrowing amounts than payday loans and can be used to cover just about any expense. Just be aware that some states allow lenders to set their APRs in the triple digits.

Car title loans

Car title loans are secured loans that use your car title as collateral. The amount you can borrow depends on your car’s value. In many cases, you must own your car outright to qualify.

Most lenders will allow you to drive your car as you repay the loan. If you default on a car title loan, the lender may repossess your vehicle. Just like payday loans, title loans should be a last resort because the average auto title loan has an APR of about 300 percent.

Buy now, pay later

BNPL, or buy now, pay later, is another short-term financing solution that doesn’t require a credit check. You can make a one-time purchase and repay what’s owed in equal installments across a few weeks or months. Most BNPL companies do not report to the credit bureaus.

Some BNPL platforms, like Affirm, require a down payment and collect the remaining balance in three installments in weeks two, four and six following the initial purchase date. Others, including Klarna, let you finance the entire purchase with no money down and then collect payments every two weeks.

The primary draw of BNPL is the ability to finance purchases and pay over time without interest. That said, you could be subject to penalties if you’re unable to make timely payments and overspending is easy. In Bankrate’s most recent Buy Now, Pay Later Survey, nearly 1 in 3 U.S. adults (29 percent) who’ve used BNPL services reported overspending.

How to shop for no-credit-check loans

No-credit-check loans are offered by a variety of lenders, some of which may be less reputable than others, making it important to do your research.

• Look at the interest rates charged by each lender. Even if you get stuck with a high APR, comparing lenders will help you get the lowest rates you qualify for.
• Understand all fees associated with the loan. With payday loans, the lender may only charge a flat fee per $100 borrowed. This can result in a high equivalent APR, even if there is no interest.
• Read online reviews. Use websites like the Better Business Bureau (BBB) and Trustpilot for each lender to help you steer clear of any scams or companies that have patterns of poor customer experiences.
• Know your state laws. Ensure that the loan you’re taking out is legal — and that the lender is following the limits on fees, interest and loan terms.

If you’re asked to provide money upfront in exchange for a loan, move on. This is a sign of a scam. Additionally, if a lender will not provide information about all of the fees associated with the loan, consider it a warning sign the lender may not be on the up and up.

Alternatives to no-credit-check loans

There are several alternatives to no-credit-check loans that can give you the funds you need even if you have bad credit or no credit.

Bad credit loan lenders

A number of lenders specialize in extending money to borrowers with bad credit. If you go with a bad credit loan lender, you may be able to secure a lower interest rate than you would with a no-credit-check loan.

To get the best bad credit loan rates, shop with several lenders before applying.

Credit unions

Compared to banks, credit unions often have lenient requirements. As long as you’re a member, you may be able to get approved for a loan from a credit union even with bad credit. Credit unions will likely look at your entire financial picture in addition to your credit.

Plus, the interest rate they charge on most loans is capped at 18 percent. And the maximum APR for payday alternative loans (PALs) is 28 percent.

Payday alternative loans

Payday alternative loans (PALs) are small, short-term loans offered by some federal credit unions. Loan amounts typically range from $200 to $1,000.

They’re generally more affordable than traditional payday loans and repayment terms range from one to six months. If you apply for a PAL, a credit union will ask you for proof of your income to make sure you can repay your loan.

Secured loans

Secured loans are protected by collateral, which is something valuable you own. Collateral can be a physical asset such as a house, car or boat. It may also be a cash deposit.

Since secured loans are less risky for lenders, you can get approved for one with bad credit. The caveat, however, is that the lender may seize your collateral if you default on your loan.

Secured credit cards

You may not get approved for a traditional unsecured credit card with bad credit. That’s where secured credit cards come in — some issuers do not do credit checks for them.

When you take out a secured credit card, you make a cash deposit that’s typically equal to your credit limit. The credit card issuer will take your deposit if you don’t repay your bill.

Bankrate loans editor Pippin Wilbers started his credit-building journey with a secured credit card.

“Using it for small everyday purchases and paying it off immediately helped me build a good credit score relatively fast, even with a small starting credit limit,” he says.

Co-signer loans

If you’re ineligible for a loan on your own, ask a trustworthy friend or family member to be your co-signer and apply for a loan with you. You’re more likely to get approved and qualify for a lower personal loan interest rate if you have a co-signer with good or excellent credit.

Just make sure you repay the loan so you can improve your credit — and so that you don’t leave your co-signer responsible for the payments.

The bottom line

No-credit-check loans can be a tempting option if you are pressed for cash and have a spotty (or non-existent) credit history. But with many lenders charging interest rates well into the triple digits, you will want to consider this kind of loan carefully before signing an application to borrow.

Doing your research and considering all of the alternatives available to you can help to ensure you are making the best financial decision for your circumstances.