What Is A No Credit Check Loan And What Are Its Alternatives? 

The main points

There are no credit check loans that cater to people with low credit scores or bad credit history.

No Credit check loans often come with much higher interest rates and fees than the average personal loan.

These loans should be approached with extreme caution and as a last resort financing option.

No Credit check loans do not require a review of your credit score, which makes it easier if you have bad credit. But they can be risky and often have high interest rates and setup fees.

What is a no credit check loan?

Lenders do not conduct rigorous credit checks or review your credit history with a no credit check loan.

Instead, the application review and decision process is based on other factors such as employment status, income, bank account history, or collateral - if you've taken out a secured loan. For applicants with secondary credit or a clear payment history, a no credit check loan can be an attractive option.

However, lenders are able to charge much higher interest rates and additional fees. The average personal loan interest rate for borrowers with fair to bad credit is 18 percent to 32 percent.

Although the lender will not check your credit, you can expect similar rates because you are seen as a riskier borrower. Review the loan agreement carefully and understand what you are signing up for before getting a loan.

Loans without need a credit check

There are different types of loans that do not require the borrowers to go through a credit check to get the funds approved.

Loan payday

Payday loans are small, short-term loans that you can pay off the next time you make a payment. In most circumstances, two to four weeks.

These no credit check loans are designed to provide you with quick cash to get you through to your next paycheck. While these loans can be a life saver in an emergency, they should be your last resort because different state regulations allow them to charge up to 400 percent APR.

No credit check installment loan

With no credit check installment loans, you borrow a lump sum and pay it back over time with fixed monthly payments. They usually come with a higher loan amount than payday loans and can be used to cover any expenses. And although they have lower interest rates on average, some states allow lenders to set their APRs in triple digits.

Car ownership loan

Car title loans are secured loans that use the title to your car as collateral. How much you can get will depend on the value of your car, and in many cases, you'll need to own your car to qualify.

Most lenders will allow you to drive your car while you are paying off the loan. If you fail to repay a car title loan, the lender may repossess your vehicle. As with payday loans, title loans should be a last resort because the average car title loan has an APR of about 300 percent.

How to shop for no credit check loans

Credit check loans are not offered by a wide variety of lenders, some of which may be lesser known, which makes it important to do your research.

Check the interest rates charged by each lender. Even if you are stuck with the high APR, comparing lenders will help you get the lowest rate for which you qualify.

Understand all the fees associated with the loan. With payday loans, the lender may only charge a flat fee for every $100 borrowed. This can result in an equivalent higher APR, even if there is no interest.

Read online reviews on websites such as the Better Business Bureau (BBB) for each lender to help you steer clear of any scams or companies previous clients have had bad experiences with.

Know your state's laws to make sure that the loan you're getting is legal -- and that the lender adheres to restrictions on fees, interest, and loan terms.

If you are asked to save money for the loan, go ahead. This is a sign of fraud. In addition, if the lender does not provide information about all of the fees associated with the loan, take this as a warning sign that the lender may not be on the rise.

What are the drawbacks of no credit check loans?

While no credit check loans might seem like a great option, some should be approached with caution - such as payday loans and auto title loans. Their exorbitant interest rates result in higher payments, which can put you in a cycle of debt that can negatively affect your credit. Some lenders also charge additional fees that make it more difficult to get your money in order.

And since many of these types of loans don't build your credit, you lose the chance that making your payments will contribute to your credit score boost. In short, credit check loans cannot lead to many negative financial consequences.

What are the alternatives to loans without a credit check?

There are many alternatives to no credit check loans that can give you the money you need whether you have bad credit or no credit.

Bad credit lenders

A large number of lenders specialize in providing funds to borrowers with bad credit. If you deal with a negative credit lender, you might be able to acquire a cheap interest rate for someone with bad credit.

Credit unions

Compared to banks, credit unions often have more lenient requirements. As long as you are a member, you can get approved for a loan from a credit union even with bad credit. Credit unions will likely look at your entire financial picture as well as your credit. Also, the interest rate charged on them is set at 18 percent.

Alternative payday loans

Some federal credit unions provide payday alternative loans (PALs), which are modest, short-term loans. They are usually more affordable than traditional payday loans and come with longer repayment terms. If you apply for a PAL, the credit union will ask you for proof of your income to ensure that you can repay your loan.

Secured loans

Secured Loans are secured by collateral, which is your prized possession. A tangible item, such as a home, vehicle, or boat, can be used as collateral. It could also be money. Since secured loans are less risky for the lenders, you can get approved for bad credit loans. However, the caveat is that if you default on your loan, the lender can seize your collateral.

Secured credit cards

An unsecured traditional credit card with bad credit may not be approved. This is where secured credit cards come in - some issuers don't run credit checks for them. When you get a secured credit card, you make a cash deposit that is usually equal to your credit limit. If you don't pay your bill, the credit card issuer will take your deposit.

Co-signer loans

If you do not qualify for a loan on your own, ask a trusted friend or family member to co-sign and apply for the loan with you. If you have a co-signer who has good or excellent credit, you are more likely to be approved and qualify for a favorable interest rate. Just be sure to pay off the loan so you can improve your credit and not leave your co-signer liable for the payments.