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, 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.
Why is it harder to get a loan without a bank account?
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.
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.
Cash loans without a bank account
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.
Ask your friends and family
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.
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.
Pros of borrowing from friends and family
- Family members can lend to one another regardless of credit history and may not ask for proof of income.
- Usually, friend and family loans come with lower interest rates than what banks would lend.
- Both parties can win. The borrower can get the loan with good terms, and the family member will get their money back with a little bit of interest gained.
- No worries about the online applications or requirements for direct deposits that traditional lenders often seek.
Cons of borrowing from friends and family
- Tax rules may apply when a family loan is taken out.
- Broken loan agreements or lateness in repayments may cause tension.
- With a family loan, your credit history doesn’t have the potential to improve. However, there are other ways to build credit.
- If you think you’ll have trouble paying back the loan, it might be best to not ask a family member or friend so as to preserve the relationship.
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.
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.
Pros of payday loans
- Payday lenders have few requirements. Usually, you only need to prove that you have sufficient income to pay back the loan.
- No credit or bad credit history isn’t a factor for payday loans. Anyone 18 years or older with a valid Social Security number or government-issued I.D., such as a driver's license, can qualify.
- Once approved, you’ll usually have the loan within 15 to 30 days.
- There is little to no waiting time for approval. Lenders hand over the cash as soon as they verify the information they need. This usually occurs within minutes or on the same business day.
Cons of payday loans
- A typical payday loan has an interest rate of 391%, though interest rate caps vary by state.
- You must pay on time or risk paying much more in interest for the loan you took out.
- There might be very high penalty fees for not paying on time.
- If you miss the payment, the debt might roll over and you could incur more penalties, fees and interest than the original amount you would have owed.
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.
Pros of lending circles
- Access to a no- or low-interest loan. This means you’ll owe less money and be able to pay off your debt far more quickly, because you’ll be paying only (or primarily) the principal.
- Quick approval. On average, they take a few days, but some sites can give you a decision on a loan in 24 hours.
- Different platforms that facilitate funding may not view a low credit score as an obstacle, using their own algorithms to determine whether you’re a good candidate for a loan.
- Most platforms report the payments you make on a lending circle loan to the three major credit bureaus.
Cons of lending circles
- Some peer-to-peer lending sites charge an origination fee or closing fee, ranging from roughly half a percentage point to as much as 4.5% of the amount you’re borrowing.
- Even though you’re paying less interest, you may have to make higher monthly payments. This means you’ll get the loan paid off more quickly, but it also may commit you to a level of payment you may not be comfortable making.
- If you fail to repay your loan, your credit will suffer, just as it will with a traditional loan or credit card. They’re not free money. You still have to sign a contract and commit to paying back the loan.
Payday alternative loans
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.
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.
Pros of payday alternative loans
- Typically less expensive than regular payday loans
- Offered only by certain federal credit unions, which means they’re regulated by the federal government and tend to have reasonable interest rates
- You might be able to borrow more than with a payday loan. You can get a loan up to $2,000, while payday loans are usually $1,500 or less.
- Interest rates cannot be more than 28%.
- Application fees are limited to $20.
Cons of payday alternative loans
- You’ll need to have been a credit union member for at least a month before applying.
- You will also likely need to disclose the purpose for borrowing the money.
- They are not as easy to qualify for as payday 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.
Auto title 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. 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.
Pros of title loans
- An option for people who outright own a vehicle
- Easy and fast availability to money once approved, usually within the same business day
- No credit checks, and it’s OK to apply with bad credit or no credit rating
- Unlike other types of collateral, you can keep your vehicle for the duration of the loan and use it, as long as you pay what you owe.
Cons of auto title loans
- Usually a riskier type of loan to take out
- You do not have possession of the title during the duration of your loan.
- The loan is secured by the title of your vehicle, meaning it can be repossessed from you if you do not pay back the loan.
- High-interest rates, especially if you can’t pay the loan off in full immediately
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
Pawn shop loans are another type of alternative loan option people without a credit score or bank account can pursue. 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.
Pros of pawn shop loans
- May be less risky than auto title loans. Since you’re putting up an item as collateral, if you can’t repay, your loss is limited to that item rather than increasing fees or interest.
- You need to put up an item that has personal or financial value, for example, a family heirloom. You could be disappointed if you lose such an item in the event of not meeting your repayment terms.
- You get the item you put up as collateral back once you’ve repaid the loan.
Cons of pawn shop loans
- You might not get as much money as with other types of loans.
- Since you don’t need a bank account, you will have to provide another form of collateral, such as jewelry, antiques, electronics, etc.
- Your item must typically be worth more than the value of the secured loan.
- The loans come with high interest rates. And you run the risk of losing the valuable asset that you gave up for collateral.
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.
The bottom line
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.
- OppU. “Can You Get a Bad Credit Loan With No Bank Account?” https://www.opploans.com/oppu/articles/can-you-get-bad-credit-loan-without-bank-account/. Accessed July 3, 2021
- Credit Karma. “Family loans: What to know before you borrow or lend within the clan.” https://www.creditkarma.com/personal-loans/i/family-loans. Accessed July 4, 2021
- U.S. News. “A Guide to Borrowing Money From Friends and Family.” https://money.usnews.com/money/personal-finance/family-finance/articles/2018-08-14/a-guide-to-borrowing-money-from-friends-and-family. Accessed July 4, 2021.
- National Consumer Law Center. “Payday and Installment Loans.” https://www.nclc.org/issues/high-cost-small-loans/payday-and-installment-loans.html. Accessed August 2, 2021.
- Credit Karma. “What is a payday alternative loan?” https://www.creditkarma.com/personal-loans/i/payday-alternative-loan. Accessed July 4, 2021.
- Auto Review Hub. “Pros and cons of title loans.” https://autoreviewhub.com/pros-and-cons-of-title-loans/. Accessed July 4, 2021.
- Federal Trade Commission. “What To Know About Payday and Car Title Loans.” https://www.consumer.ftc.gov/articles/what-know-about-payday-and-car-title-loans. Accessed August 2, 2021.
- Investopedia. “8 Unusual Ways Businesses Can Borrow Money,” https://www.investopedia.com/small-business/how-businesses-borrow-money. Accessed August 6, 2021.
- U.S. News. “Best Peer-to-Peer Lending Websites for Investors,” https://money.usnews.com/investing/articles/best-peer-to-peer-lending-websites-for-investors. Accessed August 6, 2021.
- Ask the Money Coach. “The Pros and Cons of Peer-to-Peer Loans for Entrepreneurs and Consumers,” https://askthemoneycoach.com/pros-cons-peer-to-peer-loans-entrepreneurs-consumers. Accessed August 6, 2021
About the Author
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).