Many people assume they can’t get a loan without a bank account, but fortunately, it’s entirely possible in times of need. But the options are limited and can be very expensive.
Borrowers should take into consideration that other forms of collateral, along with high-interest rate loans, may take the place of a bank account when dealing with alternative types of direct lenders or online lenders.
If you belong to one of America’s 9 million unbanked households,[1] you understand the stresses and frustrations of being unable to get a personal loan because of a lack of savings or checking account. While there are many pros and cons of personal loans, these usually come with better terms than other alternative loan types.
Many people wonder why it is harder to get a loan without a bank account. Securing a loan without a checking or savings account is more difficult but definitely possible.
The primary reason it’s harder to get a loan without a bank account is this: Lenders worry about getting their money back from you if they don’t have access to your bank account.
Bank accounts are seen as collateral guaranteeing that the lender will be able to get their money back. Essentially, bank accounts assure lenders they’ll have recourse to collect in the event the borrower reneges on their voluntary payments.
Even “bad credit lenders” prefer their applicants to have bank accounts. Some may advertise that they offer “no-credit-check loans,” but they also want to know you have financial resources in the event that you miss a payment.[1]
Some lenders will set up an automatic deduction for payment on its due date while others view bank accounts as a sign the borrower has financial resources and is somewhat financially responsible.
Usually, the types of loans you can get without a bank account are riskier in the sense that they have higher fees and higher interest rates. Plus, your car can be repossessed if you don’t pay back the loan in a timely manner.[1]
People with low or no credit scores often seek out alternative loan options to gain access to the money they need. In many cases, these people have no bank accounts or credit cards. Here is an overview of alternative loan options that you can pursue.
Sometimes when people aren’t eligible or are denied traditional loan types, they turn to their friends and family to borrow money. Family loans, sometimes called intra-family loans, come with definite pros and cons.[2]
It’s important to carefully weigh them all before asking someone you have a relationship with for money. For some, it works out great, but for others, not so much.
It’s always important to not only consider the pros and cons, but to also consider any consequences before asking friends and family for a long- or short-term loan. While you might plan for things to go smoothly, they may not because sometimes unexpected events occur.
If things go wrong, it could significantly harm your relationship with the person you borrowed from – which can have a ripple effect on others in your inner circle.
Payday loans are a controversial type of loan. They often trap people in cycles of debt because of high interest rates and the need to continue to refinance payday loans to afford living expenses.[4]
While payday loans can secure quick cash, the cons greatly outweigh the pros because of the high likelihood you will get into deeper debt when you use one.
Payday loans can snowball quickly and leave you in worse debt than you originally had if you’re not very careful.
A lending circle is a group of people who lend money to each other, either interest-free or at very low interest. The members decide on a target amount for the loan you’ll get, then each contributes a set amount of money each month to a pool. When the target is reached, you receive the loan.
Also known as peer-to-peer lending or social loans, lending circles offer a low-interest alternative to payday loans. Members agree to stand an order for payouts, which means you “get in line,” but those who have an urgent need can ask to be given priority.
A number of platforms, nonprofits, and apps facilitate lending circles, including Mission Asset Fund, Funding Circle, Lending Club, and Kiva.
Payday alternative loans work similarly to payday loans, but with some distinct differences. For starters, they’re regulated and offered only by credit unions. This eliminates predatory lending risks, which is a huge plus.[5]
However, payday alternative loans offered by this type of financial institution are more restrictive and more difficult to be approved for. Here’s an overview of the pros and cons of such loans.
In many ways, payday alternative loans are better options than payday loans. While missing a payment on one of these loans could still hurt your credit and incur fees, the fees are more regulated than for payday loans. While most payday loans are rolled over at least once, incurring extra fees and potentially leaving the borrower stuck in a debt cycle, that cycle is far less likely with payday alternative loans.
You can pursue a loan called an auto title loan if you own your vehicle outright and have possession of the vehicle’s title.[1] Essentially, your car is the collateral for the loan. There are pros and cons to a car title loan. It’s important to thoroughly understand what these are before pursuing a title loan.
Title loans, unlike traditional installment loans, come with no bank account required. The loan application process is simple. And you don't have to show bank statements to qualify. However, the cons may not be worth the risks of losing your car or truck in the event of repayment default.
Pawn shop loans are another type of alternative loan option people without a credit score or bank account can pursue.[1] Like the other types of secured loans we’ve discussed in this article, there are pros and cons. It’s important to evaluate these before pursuing a pawn shop loan.
Pawn shop loans might be a good option if you don’t care about the item you put up for collateral. However, if the item is important to you, this is something to weigh carefully because you could lose it forever with this type of secured loan option.
Alternative secured loan options, like the ones listed above, are good options in the event you really need fast cash in a pinch. However, they do come with significant risks that shouldn’t ever be taken lightly. Alternative loans can lead to either snowballed debt that isn’t manageable or loss of valuable property.
Ultimately, the choice is yours and you must weigh the pros and cons of any of these alternative loan types.
Your best bet is to establish good personal finance habits. Start by opening and maintaining a savings or checking account in good standing. Then work toward building credit or fixing a bad credit score, and, if you struggle with credit card debt, learn how to use a credit card wisely.
A bank account, coupled with good credit, may allow you to get a better loan and potentially access unsecured loan options.
Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).