Typically, when applying for a loan, the potential lender performs a credit check (sometimes called a credit check) on the borrower. A loan without a credit check is a viable alternative to traditional financing for those looking for a loan but know their credit history will not be accepted.
A credit check allows a business to access a potential borrower’s credit report from one of the three major credit bureaus – Experian, Equifax, and TransUnion. These inquiries are especially important if the borrower is asking for a large amount of money, such as a home loan or car loan. These reports will show the borrower’s finances and ability to pay.
If a borrower’s credit history shows an abundance of late or missed payments, too many recently opened accounts, or a high credit utilization rate (for example, maximum credit cards), the lender can deny the loan application. These red flags are also negatively impacting the FICO credit rating, and borrowers below 600 are under credit. Credit checks exist to prevent the consumer from borrowing more than he can repay and to protect the lender from financial loss.
You may have gone bankrupt or dealt with collection agencies in the past, causing your credit rating to deteriorate, but you’ve been in charge of your finances ever since. Or you are a recent college graduate who has never applied for a credit card and therefore has no credit history. A loan without a credit check might be right for you.
As the name suggests, a no credit check loan involves no credit check. In financial terms, these are known as subprime loans. Lenders provide these loans to borrowers with a higher risk of default than more favorable blue chip borrowers. However, as with any financial decision, there are pros and cons to using loans without a credit check.