7 Tips For Getting A Loan When You Have No Credit

Summary: Even if you have no credit history, you still have options for getting a loan.

Getting a loan with no credit

By Ben Luthi
Reviewed by Lauren Bringle, AFC®

If you need cash to finance a large purchase or cover an emergency or everyday living expenses, it can be tough to get approved by a loan provider if you have no credit.

There are options, however. Don't know how to get a loan with no credit? Here are the top options:

There are plenty of lenders that specialize in working with borrowers with no credit history, and you might even have a chance of getting approved with a traditional lender. If you have asked, "Can you get a loan with no credit?" our experts are here to help. If you have no credit history or a bad credit score, we'll cover everything you need to know on how to get your loan application approved without credit.

Lenders and credit checks

In most cases, you can expect a lender to run a credit check when you apply for a loan. A traditional lender is looking to see if you have a good credit score to determine your likelihood to pay back a loan. While some lenders don't do credit checks at all, it's in your best interest to avoid that type of alternative lender. Most of these are payday lenders, charging you interest rates that can exceed 400%.

Even some personal loan companies don't run a credit check, though. In this case it means the lender or loan provider probably isn't doing its due diligence to determine whether you're a risky borrower based on your credit rating. To make up for that potential risk, these lenders often charge exorbitant interest rates - often in the triple digits.

As a result, it’s usually in your best interest to work with a financial institution that will check your credit history, even if you don’t have one.

No credit is not bad credit

It's important to keep in mind that having no credit history is better than having a bad credit score. Instead of showing that you have a poor record using credit, it simply means that you haven't had a chance to prove yourself. From a lender's point of view, it's still a risk, but it's not a proven one.

That said, you can still expect to pay more for credit than if you were to have a solid credit history. Having no credit history at all means the lender doesn’t know anything about how you’ll handle your monthly payment, so there is an element of risk involved. But there are some ways to mitigate that risk and potentially get a lower rate.

How to get approved for a loan with no credit history

Your options for getting a loan with no credit can depend on what you plan to do with the loan proceeds. For example, auto lenders have different criteria than mortgage and personal lenders. Here are some ideas to help you get approved.

Apply with a lender that works with no-credit borrowers

There are some lenders out there - personal, auto, and mortgage - that understand that even people with no credit sometimes need financing. So they may offer manual underwriting [1] instead, which is usually more focused on your income and assets than on your credit history. However, unless you’re wealthy, you may not qualify for manual underwriting that’s not based on a good credit history.

As you research your options, it's important to know what to avoid. Specifically, steer clear of payday lenders and auto title loans, as well as potential scammers.

If you need money sooner rather than later, but don’t have good credit, check out some of these payday loan alternatives.

  1. Payday loans: These loans don't require a credit check, making them very enticing to borrowers. The tradeoff is that payday loans typically charge fees in the 400% APR range and up and have a shorter loan term. As a result of things like hidden fees and rollover charges, payday loans often result in higher-than-expected payments for the borrower.

  2. Auto title loans: Similar to payday loans, title loans are also available without a credit check and you're able to use your vehicle during the loan term. Borrowers should be aware that the lender can take possession of their car if monthly payments are missed. Title loans are also required to be paid back between 15 and 30 days. This is a short timeframe considering these loans typically have a very high interest rate.

  3. Scammers: Keep an eye out for scammers who prey on the desperate. If a “lender” asks you to pay upfront fees, do anything involving sending money orders or gift cards, or has a website riddled with grammatical errors, run in the opposite direction.

Take advantage of alternative data

A credit history - or lack thereof - doesn't always accurately describe a person's financial responsibility. Some modern online lenders and peer-to-peer lending platforms also understand this and are starting to consider alternative credit data.[2]

Things like your income and overall expenses, savings rate, earnings potential, debt-to-income ratio, and retirement balance can improve your chances of getting a loan. That's because these factors can be evidence of responsible financial behavior when balancing debt.

As as you’re researching lenders, keep an eye out for ones that consider alternative data when making approval decisions.

Make a large down payment

If you're applying for an auto loan or mortgage loan, a major factor lenders consider is your down payment. A large down payment not only reduces the amount the lender needs to loan you - which decreases its overall risk - but it also shows that you have skin in the game and are less likely to default.

With a mortgage loan, a down payment of 20% or higher can help improve your chances of approval. With an auto loan, there’s no standard amount but the more, the better.

Opt for manual underwriting

If you’re applying for a mortgage loan, it’s possible to avoid having the lender consider your credit at all. With this process, lenders typically try to get as much current and past financial information from you as possible.

For example, you may be required to submit documentation of on-time payments for rent and other monthly obligations for the past year or two. You’ll also likely need to have a large down payment plus a healthy reserve of cash beyond that.

Manual underwriting is an intensive process that requires a lot of paperwork and scrutiny. But the good news is that if your finances are in great shape and you simply have no credit score or any type of revolving credit, you may have a good chance of getting approved.

Get a creditworthy cosigner

If you have a family member or close friend who has good credit and is willing to apply with you as a co-applicant, it could improve your chances of getting a loan, possibly with a lower interest rate than what you'd qualify for on your own. So if you are looking for a loan, find a creditworthy cosigner to apply for the loan with you.

Mortgage and auto lenders typically allow co-signers. But some personal lenders require borrowers to apply on their own. So if you're looking for a personal loan, don't assume you can apply on your own and then add a trustworthy co-signer later. Research lenders to find one that allows co-applicants from the start of the loan application process.

Also, it’s important to understand that as a cosigner, your loved one will be equally responsible for paying your loan. This means that if you default, both your and their credit will suffer some damage. So if you’re going the cosigner route, make sure you avoid breaking their trust.

Get a credit builder loan

If you’re looking for a loan simply to establish a positive credit history, consider getting a credit builder loan. The way these no credit loans typically work is a little different than traditional loans. Once you get approved, the lender sets the loan funds aside in a savings or CD account instead of giving it to you.

You'll then make a monthly payment for your loan term, typically for up to a year, with interest. Once the loan has matured, you'll get the loan funds back, plus any interest it earned in the savings or CD account (but minus any fees and the interest on the loan).

Credit builder loans can be a great way to establish a positive payment history with the credit bureaus and can help jumpstart your efforts to develop good long-term credit habits.

Also, some credit unions and banks offer a savings-secured loan, which can also help build credit. The only caveat is that you typically need enough cash in a savings account with the financial institution to act as collateral for the loan amount.

Borrow from family or friends

Sometimes the best way to get fast cash isn’t through a lender at all. If you have a good relationship with a family member or friend, it may be worth asking them for help.

Keep in mind, though, that borrowing from loved ones can be devastating if things go wrong. As such, it’s typically a good idea to draw up an official agreement between you and them, and consider paying them back with interest.

Your loved one may be more understanding than a lender if you’re struggling to repay the loan, but avoid taking advantage of that fact. Make it a priority to pay them back as quickly as possible.

The bottom line

Having a thin or nonexistent credit profile can limit your options for getting a loan, but it won’t eliminate them entirely. Regardless of how you approach the situation, it’s important to consider why you need the money and whether there are other options.

Take the time to research what's available to you, and make a decision based on what's going to cost you the least amount in the long run. In some cases, that may be not borrowing any money at all if the interest rate, loan terms, or fees and other charges are not reasonable for the purpose of your loan.

Sources

  1. Rocket Mortgage. “What Is Manual Underwriting And How Does It Work?” https://www.rocketmortgage.com/learn/what-is-manual-underwriting-and-how-does-it-work Accessed March 23, 2021

  2. Consumer Finance Protection Bureau. “Using Alternative Data To Evaluate Creditworthiness” https://www.consumerfinance.gov/about-us/blog/using-alternative-data-evaluate-creditworthiness/ Accessed March 23, 2021

About the author

Ben Luthi is a personal finance writer who has a degree in finance and was previously a staff writer for NerdWallet and Student Loan Hero. See Ben on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® and Content Marketing Manager with Self Financial – a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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Written on December 19, 2018
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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