Does a dodgy credit rating rule you out of getting a loan? And can you get one without a credit check whatsoever? We take a look…

There are plenty of lenders that claim to offer people loans with no credit check, but are these offers genuine? And more to the point… what’s the catch?

The idea behind these ‘no credit check loans’ is that people with a bad credit score have a way to get around this obstacle that bars them from getting a standard loan. But this is an issue that needs plenty of research to help you avoid taking on a lot of very expensive high-risk debt.

What you need to realise is that taking out a loan with less strict credit checks will usually come with a lot of negative downsides such as a ridiculously high-interest rate, very expensive fees and harsh financial penalties should you miss a payment or fail to pay back your loan on time. 

For most people, it would be worth working on improving your credit score rather than relying on loans with no credit check. 

What is a credit check?

Whenever you apply for a financial product such as a bank loan or credit card, the financial institution offering the product will perform a credit check. 

They will look at your credit report that shows the history of your financial record. This will detail all of your financial interactions such as debt still owed, debts repaid, defaults and missed payments. The record of your financial interactions will help lenders assess your likely future behaviour.

You will also carry a credit score and the lender will use this to assess how much risk you carry going into the future. Your credit report is a key piece of information that lenders will use to either approve or reject your application for a loan. 

What are no credit check loans?

The most common type of loan that needs no credit check is a payday loan. In fact, you may have seen plenty of TV adverts from payday loan companies that openly advertise their lack of credit check as one of their most positive features.

However, you should try not to be drawn in by their message and the positive spin they put on this feature. These types of loans are very expensive ways to borrow money and, if you are not in a good financial position, you may struggle to pay it back.

Payday loans are usually arranged for a much shorter term – usually less than a month. They often only offer smaller sums of money – usually anything between £75 and £1,000. The APR on a payday loan can often be well over one thousand per cent.

While it may be very tempting to quickly access a loan to solve a money issue that you may be suffering from right now, taking out one of these loans can make it harder for you to clear your debts, especially with the hefty additional fees charged by payday lenders. 

Are these loans genuine?

Official loan providers are government registered and regulated and need to abide by certain rules to sell their financial products. Generally, regular lenders will check your credit rating to assess your risk before being offered any form of loan or credit.

Should you be looking around for a loan and be offered one without any form of credit check, then the lender may be fraudulent or are operating as an illegal loan shark, in which case you should avoid borrowing from them.

Loans without a full credit check

In some cases, you may be able to get a loan without the lender performing a ‘full-credit-check’. This is where the lender will do a light skim of your credit record to check that you are not bankrupt and that your ID is genuine. 

However, you need to be very careful here because a lender that is happy to only do a light skim or basic check of your credit record will usually apply very high fees, high-interest rates and strict terms and conditions that can see you much worse off in the long run.

Guarantor loan providers

You may be able to access a loan through a ‘guarantor loan’. The lender will perform a credit check on your guarantor rather than on you. A guarantor is someone willing to back up your loan and will guarantee that they will pay back the loan should you fail to do so.

In some cases, the lender will perform a credit check on both you and your guarantor, so this can mean that the loan offered would be more expensive because your bad credit record would increase the risks. 

While guarantor loans are safer and more genuine than payday loans, they do come with a high level of risk to both yourself but also your guarantor. 

If you are considering a no credit check loan, then you should speak with a debt counsellor to see if there are better ways to resolve your debts. 

In Short

Yes, it is possible to get a loan without a credit check. But is it a good idea? Well, it’s generally a more expensive way to borrow and can result in expensive debt.

But (and this is important) we’re not financial advisers. If you’re considering a loan or you’re struggle with debt or credit history issues, go speak to an expert.

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