Personal Loans That Do Not Require a Credit Check
- 10th July 2018
- Posted by: Loanable
- Category: Resources
In applying for a personal loan, there are a few things lenders look at in making their decision as to approve, or reject the loan application.
* Affordability: Can the borrower afford to repay the loan? What other outstanding bills and accounts are they currently paying, and can they afford this new monthly payment.
This is why a lender may request an income and expenditure sheet to be completed. This will show all the monthly outgoings the borrower has, and also all their income.
Income may come in the form of wages, tax credits, benefits, or pensions.
Some lenders for certain loans, will look at ratios, of how much current debt a borrower has against their income. Too much current debt or bills could mean an affordability issue, which could cause the loan to be denied.
* Credit history: To be more specific, credit score, credit scores are used by lenders to make a quick determination as to approve or deny a loan.
Credit scores also can dictate the interest rate a borrower may receive.
High credit scores are good, low credit scores are bad, so the higher a credit score a borrower has, the more likely they are to be approved for a loan. In addition, higher credit scores get better or lower interest rates.
Credit scores are made up of five factors:
* Payment history
* Balances owed
* Length of time being credit active
* The types of accounts we have
* Applying for new credit
* Purpose of the loan: The reason you want a loan is also used in determining to approve or reject a loan.
If you are requesting a loan to consolidate other accounts, this may be viewed as being over-extended, and can make a lender look closer at your application.
If the purpose of a loan is to buy a property, or a car, something that secures the loan as collateral, the lender may be more likely to grant the loan. An unsecured personal loan is a higher risk loan to a lender than a secured loan.
Property and car loans with deposits are less of a risk to a lender, and they are less likely to require a guarantor, and may be flexible in what credit scores they will accept.
* Loan terms: Loan terms are things such as the length of the loan, how long will you be repaying the loan, the loan amount, and the interest rate.
With a shorter term for a loan, the lender gets their money back faster, which means less risk.
Loans for those borrowers with bad credit, may carry a higher interest rate, as they are a higher risk to the lender.
The terms of a loan can correlate directly to credit scores. Higher credit scores may receive better terms, meaning not just a lower interest rate, but also a longer term.
If we look at the various types of personal loans that are available to borrowers, which of these loans do not require a credit check, or require a high credit score.
Loans Not Based on Credit Scoring
As we will see, there are loans that are not based on credit history or credit scoring, but a lender may still check the borrower’s credit, they just will not use that component (credit history and credit score), as a basis to grant the loan.
Payday Loans: Payday loans are just what they say they are, a loan until your next payday. The loan is based on three main factors:
* The borrower has a job
* The borrower has a bank account
Credit scores are not used to approve a payday loan.
Payday loans are a short-term from of personal loans. The loans are usually for 30 days or less, and carry with them a high APR/annual percentage rate.
The interest rate is high due to the short-term of the loan, and also the risk the lender is taking.
Guarantor Loans: Guarantor loans are loans based on the fact there is a guarantor signing for the loan. The guarantor is guaranteeing the loan, which is in essence saying, if the borrower does not make the loan payments, the guarantor will be responsible for the payments.
Guarantor loans are based on:
* Having a guarantor
Interest rates and terms for guarantor loans are better than payday loans as there is less risk due to the fact there is a guarantor.
Logbook Loans: Logbook loans are based on two factors:
* Having a vehicle of value
The loan is granted due to the fact a car, or other vehicle has value and can be used to secure the loan. If the borrower fails to repay the loan, the car can be repossessed to offset any losses a lender may have.
Loans With Large Deposits: If a borrower is buying something of value, such as a property, or a car, caravan, motorcycle, anything of value that can be repossessed, having a large deposit, and the fact the loan is secured by the item, can allow lenders to approve loans for someone with a low credit score or bad credit.
The larger the deposit, the more likely the loan is to be approved.
It can be possible for someone with bad credit, or a low credit score to get a Short-term Personal Loan that is not a payday loan, or guarantor loan, and not have credit used as a basis to grant or deny the loan.
There are lenders, and credit card companies, that accept bad credit borrowers for short-term personal loans, or credit cards with an initial low credit limit.
These personal loans can carry a higher interest rate, and will usually have a short-term, such as 12 to 18 months. However, credit history and credit scores are only a small part used in determining to approve or reject the loan.