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Can I Get a Loan If I Have No Credit?
No credit loans exist, but there are a few things you need to know about them. Though they often offer financial solutions, those solutions come at a cost, which can sometimes create a cycle of debt if you’re not careful.
Because no-credit-check lenders don’t take borrowers’ credit reports into account when lending money, they are able to charge high fees and extend small amounts over short terms. You can still get a loan with no credit, but you should try building and increasing your credit score to achieve fair credit. However, if you need money quickly and don’t have time to build your credit, you still have options.
If I do not have credit, how can I get a loan?
Lenders use credit scores as an indicator of how likely they are to get their money back from borrowers. So while it’s possible to get a loan without a credit score, it’s not ideal. You’ll likely pay higher interest amounts and fees.
However, there are alternatives. Some lenders accept non-traditional credit histories. These include such things as:
- Rent payments
- Bank account history
- Utility payments
The best way to find a lender that takes non-traditional credit histories is to just pick up the phone and call, but speaking with a bank manager or loan officer face-to-face is also a smart move. Just make sure you go prepared. Paperwork you’ll want to have with you includes the above as well as:
- Pay stubs (4-6 months worth)
- Tax returns
Another option is to get a joint loan or a cosigner. The downside to both is that if you miss or are late with a payment the other person’s credit will also be hurt, which might damage your relationship.
How to start building credit
Though you may not have credit now, the good news is that it doesn’t take years and years to develop a credit history.
- Ask to become an authorized user: Friends, family and spouses are good options for this. When you become an authorized user on someone else’s card, not only do you get that person’s history with that card, but you also get access to their line of credit, too. Just make sure that they don’t have a damaged credit profile and that the account balance isn’t too high— both of which will hurt you.
- Get a secured credit card: With a secured credit card, you make a deposit that becomes the card’s balance. As you use the card and make payments on it, you’ll develop a credit history. Just make sure to make your payments on time.
- Apply for a credit-building loan: A small loan is deposited into a bank account, and you make monthly payments to the lender to pay it back in full. The amount of the loans is usually between $300 and $1,000 and are meant to help people with limited credit history increase their scores.
- Sign up for credit boosting: Experian and FICO offer a credit boosting service that is 100% free. It works by getting credit for payments to services like Netflix and cell phone companies. The amount of your “boost” depends on what services you use and how long you’ve used them, but if you have bad credit, this is a good way to increase your score quickly.
What kind of loans can I get with no credit?
As you may have picked up by now, there are non-traditional loans out there to help people with no credit. Below we go into more detail, but the key thing to keep in mind is that not every loan is ideal for every person. Loans with no credit check have their own sets of pros and cons — be it high interest or putting valuable collateral at risk. Therefore, even though you have options, you may only want to consider one or two.
Remember: any lender advertising guaranteed loan approval no credit is going to make money off of lending to you. It’s then just a matter of how much you want to pay for the ability to borrow.
Apply for a payday alternative loan
A payday alternative loan (PAL) is a loan product offered by credit unions to members. These loans can be up to $2,000 and have interest rates capped at 28%, which is much lower than payday loans and bad credit loan providers. While the loan must be paid back within one to 12 months, the fees and interests are still much more affordable than other options.
- Capped fees and interest
- Good for building credit
- Can borrow multiple times
- Short repayment period (1–12 months)
- Not available at all credit unions
- Amounts capped at $2,000
Put down collateral and apply for a secured loan
For this type of loan you will have to put down collateral such as your house, car or savings account. The biggest drawback to this type of loan, however, is that if you default on payments you run the risk of losing your collateral. Therefore, these types of loans are pretty risky, especially if your financial situation is presently tight. Definitely make sure you understand the terms and conditions of the loan very well before agreeing to put up any collateral.
- Builds credit history
- Longer repayment terms
- Lower rates than unsecured loans
- Amount based on asset value
- Could lose your assets
- Longer funding times — asset appraisal needed
Apply for a loan with a cosigner
Applying for a loan with a cosigner essentially means both you and the other person are equally responsible for the loan. Though you may agree to make all of the payments by yourself, the lender will consider both of you at fault should you stop making payments. This means that both of your credit scores will be negatively impacted.
Applying for a loan with a cosigner is very much the same as applying for a loan by yourself. Both of you will need to provide the necessary paperwork, and you’ll be able to do a lot of it online. The only catch is that obviously your cosigner needs to have a strong credit score and credit report to offset your lack of credit.
- Access to previously denied loans
- Possible higher loan amount
- Possible lower interest rates
- Defaulted payments hurt both scores
- Could strain relationship
- Two hard credit checks required
Borrow from your 401(k)
A 401(k) account is a retirement account where you contribute money to your retirement with each paycheck. For many people, their employers match their contributions. Borrowing from your 401(k) is not the most ideal option because you’re essentially borrowing from your future self. Therefore, it’s a loan with no credit check option that can easily complicate things for you further down the road.
The great thing about doing this, is that there isn’t a lender involved because you’re borrowing the money from yourself. However, if you don’t pay the money back within a certain timeframe you run the risk of having to pay taxes on the money plus a 10% penalty. Another downside is that if you lose your job, you will have to repay the full amount by that year’s tax return if your employer has been contributing.
- No loan application
- No taxes or penalties
- No credit score is required
- Loan amount limitations
- Not possible with all employers
- Might lose any investment gains
Compare each option and read the fine print
All of the above options offer immediate, short-term solutions to many financial situations. However, consider the long-term effects of each. Will a relationship be strained? Is the interest too high? Will you be stressed about losing any collateral? There are obviously a lot of questions you’ll need to ask yourself for each type of loan.
[Read: Quick Ways to Borrow Money]
As with any loan, you’ll want to make sure you fully understand the loan terms. Things you’ll need to consider include:
- Total cost of loan with interest, fees and more.
- Amount of monthly payments. Can you budget for and afford them?
- Length of repayment period.
- Total amount of fees.
- Repercussions for late or missed payments.
All of this information should be included in the fine print, but if you don’t understand something speak with the loan officer before signing any paperwork.