There is a general belief that those of us with terrible credit scores are bound to find it impossible to get a loan. But in fact, with the growth of the options available from online professional lenders, it is possible to get some small personal loans without a credit check.
It may seem like a huge risk for lenders to grant loans without checking the applicant’s credit history – and this is certainly true. As a result, there are some compromises applicants need to make if they want to get approved despite bad credit.
But what are the special conditions that the applicant must accept when applying for this type of personal loan? And how can a lender give consent with such confidence when it is clearly at great risk?
No Credit Checks: Recklessness or Wise?
Any lender who accepts the risk of dealing with bad credit borrowers has undoubtedly already clearly calculated the chances of making a profit on the deal. Remember that no lender goes into a loan deal with their eyes closed, so giving personal loans without credit check is a carefully considered strategic loan option.
The simple fact is that statistics consistently show that borrowers are more interested in rebuilding their credit reputation than they are in taking the money and running it. In any case, a large percentage of credit default borrowers are honest borrowers who fell victim to the economic meltdown four years ago. So, getting approved in spite of bad credit is not much of a risk.
Also, credit scores have never been a major aspect of the approval process, so if any part of it is going to be set aside to make a personal loan faster to get access to, minimal risk is associated with a credit check.
But lenders are not about to give a $50,000 loan to someone who has not been fully vetted. They set clear limits on the size of a personal loan, with no credit checks offered for only small amounts of $100 to $1,500. Moreover, they come with very high interest rates to protect them from losses.
There is no ambiguity in these limits, as the minimum loan guarantees that maximum losses are kept low. This means that offering approval in spite of bad credit is really beneficial for applicants who have to pay specific emergency expenses or debts. Maybe, a hospital bill or a final notice about a late mortgage payment, for example.
For the borrowers, a small loan does little to help stress the repayment of these personal loans when high interest rates (25%) are being charged, and the repayment period is as short as only 14 days.
Payday loans and cash advances
The fact is that these loans are known as payday loans, or cash advance loans. This is because they are awarded against a paycheck, not on the basis of a long payback period. Offering personal loans without credit checks means approval is almost certain, just proof that the next check is large enough to cover the amount borrowed plus interest.
Repayments are usually completed in one payment, a policy that also protects the lender since there is less chance of the borrower falling behind or defaulting on payments. Moreover, even though approval is given despite bad credit, the probability of getting their money back is almost guaranteed.
However, it is imperative that the borrower budgets for the deal, with a $1,500 personal loan requiring a repayment of $1,875 – quite a lot to take out of one paycheck.