Looking to secure a loan but afraid to ask because you’re suffering from a poor credit score? After all, any responsible lenders will out rightly reject your loan application once they run a credit check and see you defaulting on repayment/s. In 2017, the FCA reported that over 40% of families in the UK had some form of credit issue and had inadequate credit scores to acquire a loan for the odd rainy- days.
The truth is that most lenders run credit checks and mandate an outstanding credit score, however, they also lend to borrowers with poor credit scores. This could explain the recent popularity of the online term “No Credit Check Loans” – with Google averaging searches exceeding 10,000 queries every month. Nonetheless, this fairly simple concept can have pretty big implications. In this article, we explain the concept behind “no credit check loans” and what to look out for when applying for a no credit check loan.
Is There a Thing such as No Credit Check Loans?
The answer is simply NO. There are primarily two forms of credit checks – A Hard Check and a Soft Check. Lenders or financial institutions offering no credit check loans are generally talking about a soft credit check. Unlike hard credit checks that have to be authorized, soft credit checks can be easily returned with a brief overview of the borrower’s creditworthiness.
Another great feature of a soft credit check is that it doesn’t reflect on your credit report. Every time a lender runs a hard credit check, your score gets lowered; which is not the case for soft credit checks. The same applies when a lender views your credit report and won’t be able to see the history of soft credit checks.
In short, soft credit checks don’t impact your credit scores and certainly don’t show up on your credit report. They are an easy way to borrow, all-the-while remaining ‘incognito’.
How do soft credit checks work?
Soft credit checks don’t rely on traditional credit checks. However, this in no way means that there won’t be any background checks. Soft credit loans generally look at the borrower’s employment and regular income. This is in part to assure the lender that the borrower will be able to afford the loan he is applying for. Lenders accomplish this by using alternative credit reporting bureaus or ask for documentary proof to substantiate borrower’s income and tenability to sustain repayments over the loan term. Borrowers are offered no credit check loans in the form of Payday loans or Instalment loans.
What are the requirements for a No Credit Check Loan?
Borrowers will need to fulfil certain basic requirements to be eligible for a no credit check loan. Lenders are keen to know about the following details.
1. The borrower must be 18 years or above, but not beyond 65 years.
2. Be a citizen of the United Kingdom.
3. Substantiate a stable source of income. Salary slips or bank statements generally stand as proof of regular income.
4. More importantly, a borrower must have a bank account where the money will be deposited as well as set-up a direct debit play for future repayments.
5. A valid address with a pin code for all communication related to loan repayments. At times lenders may also mandate a telephone number to communicate with the borrower.
How to identify whether a No Credit Loan is safe?
No credit loans are offered by both responsible lenders and loan sharks alike. So how do you identify whether the loan you are applying for is safe? There are primarily three factors that distinguish responsible lenders from loan sharks.
1. Rate: The rate is the charge that a borrower has to pay the lender for taking that loan. The rate can be categorised into interest and APR. The interest calculates the charge per month and the APR is calculated per year. Of the two, the APR is the critical number that should be considered while evaluating the loan. Representative APR Example: If you take a loan for £100 with an APR of 400%, this translates to paying back £400 over a period of one year.
2. Term: Loans terms can either be short term or long term. Short term loans can be anywhere between months and 30 days. Long-term loans can be up to 1 year and generally have longer repayment schedules and offer more flexibility in repayments. Borrowers should be wary of short-term loans with 2-week repayment terms. These are generally associated with predatory lending.
3. Repayment ability: Examination of the borrower’s ability to repay the principal loan amount is the single most important feature of a responsible lender. Borrowers should be wary of lenders promising no credit check as a prerequisite to eligibility of a loan. If the lender asks for proof for income in the form of bank statements or salary slips, this is usually a good sign.
When applied with care and due diligence, no credit check loans can be a great source of quick funds. For individuals with low credit scores, this can possibly be the only source of funds when the need arises. What is important to remember is to search around before you sign the dotted line. One way to know whether you are on the right track is to check whether respective lenders/brokers are FCA certified. This way, if you feel you’ve been short-changed, you can always count on the FCA for assistance. The most online lender will proudly advertise on their website whether they are certified. Look out for a 6 digit reference number.