There may be times in your life when you need a personal loan. But if you’re just starting out, it can be difficult to get a loan with no credit. To help you navigate that hazy period when your credit file is thin, we’ll discuss how to get a personal loan with no credit, what options you have, whether a “no-credit-check” loan is a good idea, and alternatives worth considering.
Can I get a loan with no credit?
Technically, it is possible to get a loan with no credit score. But if you try to get a loan with no credit score you’re likely to be hit with a high interest rate and less-than-favorable terms. Your lack of credit scares lenders. The tool they would normally use to judge whether or not you’re likely to pay back the loan (your credit score) is either nonexistent or too thin to tell them what they need to know.
Here are a few reasons you may not have a credit score:
- You’re just moving into adulthood and haven’t had the time or opportunity to build a credit score.
- You haven’t used credit in the past two years. Lack of activity puts a stop to the information credit bureaus need to generate an accurate score.
- You’re a recent immigrant, just starting out in the U.S., and must build a credit score from scratch.
Having no credit score is not the same thing as having a poor credit score. When someone tells you you have no credit score it simply means that there is no clear record of how you behave as a borrower. Personal loans for those with no credit are borrowing options specifically designed for borrowers who don’t have a lengthy credit history.
It can be tough to get a loan with no credit. Even if you have credit, the credit score needed for personal loans can get a little confusing. Whether you want an auto loan, a loan to finance a new pool, or a personal loan to help cover an emergency situation, a strong credit score is key to opening the credit door.
What loan options are available if I have no credit?
Let’s say you find yourself in a pinch and need to get a loan with no credit. You’ve borrowed your uncle’s RV, are vacationing in the mountains, and the RV breaks down. You don’t know what’s wrong but are pretty sure there’s going to be an expensive repair in your future. Your cash reserves are low and you don’t know where you’ll find the funds to get the RV up and running again. Qualifying for emergency loans without a credit score is not easy, but it is possible. To get a loan with no credit, it pays to know your options.
Banks and credit unions
If your credit history is practically nonexistent, you may be surprised by your ability to get a loan with no credit through your home bank or credit union. As long as you have an established relationship, a bank or credit union can easily pull up your account to check things like how regularly you make deposits, if you spend more than you bring in, and generally, how responsibly you handle your account. It may not be a credit score, but it does give them a sense of how you are likely to behave as a borrower.
If you know you’ll need a personal loan in the near future, consider joining a credit union. Some of the lowest interest rates and best terms are offered by credit unions across the country. Also, if you’re a member, credit unions tend to be more willing to gauge your creditworthiness by using information outside your credit score.
Membership in a credit union is often based on criteria such as the county in which you live, who your employer is, if you’ve been in the military, or whether you’re a member of a specific organization. There are so many credit unions in the U.S. that you should easily be able to find one that fits your situation. The ability to get a loan with no credit can make it worth the trouble.
Family and friends
It will come as no secret to your family and friends that you’ll need help to get a loan if you have no credit. They’ll understand if you haven’t had time to build a credit history. If you find yourself in an emergency situation, ask for help from those who care about you.
If they agree to lend you money, treat it as you would any loan. Write up an agreement outlining:
- How much you’re borrowing
- How often you will make a payment
- How much the payment will be
- When the loan will be paid in full
And then stick with it. There’s nothing worse than losing the trust of someone kind enough to come to your rescue.
Most people know how tough it is to get a loan with no credit. Still, the people who care about you may not have the cash to help. If someone in your life has a terrific credit score, ask them to become a cosigner on a loan.
As long as you have internet access, you can apply for a personal loan without a credit score online. A cosigner with a strong credit score improves your odds of being approved for a loan. It also increases the likelihood you’ll score a low interest rate and attractive repayment terms.
Here’s how it works: You, along with your cosigner, apply with several lenders to compare offers. Both of your names are on the loan application. Lenders conduct a credit check and base their decision both of your credit scores. Your cosigner’s strong credit helps you to get a loan with no credit.
Then, lenders run a “soft credit check,” meaning it won’t impact your credit score. When they approve your application (often within minutes), they tell you what your interest rate and repayment terms will be.
Once you decide on a lender, you let them know that you want to move forward. That’s when they conduct a “hard credit check” that will briefly ding both of your credit scores by a few points. If that credit check looks good, the lender provides loan paperwork for both of you to sign and begins the process of depositing funds into your bank account.
Each on-time monthly payment is reported to the credit bureaus and helps you build a positive credit history. But if you fail to make a payment, it’s your cosigner who’s on the hook. You owe it to your cosigner to make all payments as promised.
There are two types of personal loans: secured and unsecured. A secured loan means that you promise to give the lender something you own (an asset) if you can’t pay the loan. This is known as “pledging collateral.”
That asset may be anything of value, from a retirement account to fine art or jewelry. The lender knows that if you miss payments, they have the option of seizing the asset and selling it to recoup their losses.
It’s usually easier to qualify for personal loans without credit if you can offer collateral.
If you’re in the military and need to get a loan with no credit, a military aid society may offer assistance. For example, the Navy-Marine Corps Relief Society, Air Force Aid Society, Army Emergency Relief, and Coast Guard Mutual Assistance offer grants and interest-free loans to their service members in need.
Some employers offer paycheck advances. These are loans repaid through deductions from future paychecks. Often, these programs are run through third-party lending companies and offer all employees the same interest rates and terms — regardless of their credit scores.
If you need to get a loan with no credit and your employer offers a paycheck advance, it can benefit you in two ways:
- You’ll get the loan you need when you need it.
- It can help build your credit score.
Before you take out a loan, make sure you understand how much it’s going to cost you in interest and fees. Also find out about repayment terms and make sure you can afford the monthly deduction from your paycheck.
Personal loans for bad credit
As we mentioned, having a thin or nonexistent credit score is not the same as having a bad credit score. Still, lenders willing to take a risk on borrowers who need to get a loan with no credit are often the same lenders who take a risk on borrowers with poor credit.
With personal loans for bad credit, you can expect to pay a higher-than-average interest rate and may not land the best repayment terms. Still, taking out a small personal loan from one of these lenders gives you the opportunity to make full, on-time payments that will be reported to the major credit bureaus.
A steady stream of positive monthly reports to the credit bureaus will build your credit score. If you’re going this route, look for a loan with no prepayment penalty. Then, come up with a plan to repay the funds as quickly as possible. This strategy will help you save money on interest.
Online lenders that look beyond credit
Some lenders cater to borrowers looking to get a loan with no credit by weighing other things. They might look at where you attended college, your major, and grade point average. In other words, they attempt to figure out how responsible you’ve been so far and how likely you are to be in the future.
Be careful, though: Many lenders that offer personal loans to those with no credit history charge high interest rates and fees.
To get a loan with no credit you may want to look into a credit-builder loan. With a credit-builder loan, you apply and are approved for a small loan. You make payments on the loan, including interest, and those payments are reported to the credit bureaus. It’s only after all payments are made that you have access to the money you borrowed.
A credit-builder loan is not a good option if you need money right away.
What is a no-credit-check loan?
As the name implies, a no-credit-check loan requires no credit check. That doesn’t mean you automatically qualify, though. Lenders look at things like employment, income, and whether you have collateral to offer. And these loans are often overly expensive, causing borrowers to sink into a vicious cycle of debt. Be very careful if you’re considering a no-credit-check loan.
There are many no-credit-check loans on the market. Both a payday loan and title loan are types of no-credit-check loans. Both are prohibitively expensive, often charging 400% or more in interest. And both can trap you in a cycle of borrowing, then needing to borrow more to pay the first loan. Some no-credit-check lenders give their companies fancy names designed to sound like mainstream banks. What all no-credit-check loans have in common is prohibitively high interest rates, exorbitant fees, and terms that make it difficult to repay the loan by its due date.
Is a no-credit-check loan a good idea?
A no-credit-check lender does not conduct a credit check because it knows you need to get a loan with no credit and are unlikely to qualify for a low-interest unsecured loan. That’s precisely why they can take advantage of you. Despite how well they may advertise their loan products, a no-credit-check loan is never a good idea.
What alternatives are there to no-credit loans?
In review, there are a number of ways to get a loan with no credit without resorting to no-credit-check loans. They include:
- Banks and credit unions
- Family and friends
- Secured loans
- Military assistance
- Paycheck advances
- Personal loans for bad credit
- Online lenders
- Credit-builder loans
Looking for a loan with no credit is neither fun nor easy. Getting a loan in this situation is, however, possible. If you’re looking to get a loan with no credit, go through these recommendations, find the one that fits your situation best, and go for it. If you carefully manage the loan once it’s in your hands, you’re on your way to building a solid credit score.