You may be familiar with the misleading slogan: “no credit, no problem.” In reality, having no credit or bad credit does pose somewhat of a problem for someone looking to get a personal loan.
It’s not an impossible problem or overcome, but it does present some challenges. If you’re asking yourself, “can I get a loan with no credit?” the answer is yes, you can, but it will be more difficult for you than for someone with well-established credit.
If you have no credit or bad credit, you haven’t been able to prove that you can pay debts back in a timely manner. For this reason, lending institutions such as banks and credit unions will treat you as a high-risk customer.
They calculate this risk using credit scores when deciding who to lend to and determining details of a loan. If a lender doesn’t believe their borrower will be able to repay the loan, they will either offer a smaller loan with higher interest rates or no loan at all.
And today, ten years after the Great Recession began, increased regulations and tightened lending standards have only made things more difficult for prospective borrowers.
If you’re operating under the assumption that you can’t get a loan with no credit, you may think that shady sources of loans such as payday lenders are your only option.
These loans have extremely high interest rates that rapidly bury a borrower. Taking a loan of this nature will often burden you with even more debt than you had to begin with.
Thirteen states have outlawed payday loans, making them illegal under any terms, because of how predatory they can be.
In short, it’s wise to only apply to credible, well-known lenders like credit unions and banks. If a lender offers you a loan without even checking your credit, it’s safe to assume they are engaging in predatory practices.
When it comes to understanding the current status of your credit and how it affects your options for obtaining a personal loan, examining your credit score is the best place to start. Many online sites now provide free credit score ratings.
The following situations typically mean that you have a bad credit score:
All of the above have a detrimental impact on your credit score. They indicate to borrowers that you may not be able to repay a loan in full or on-time.
Don’t let your lack of credit or poor credit score get you down or entice you into a situation that sounds too good to be true (like payday loans).
The bottom line is you can, in fact, get a loan with no credit. Options do exist, but it may take some time and a bit of research to figure out the best one for your needs.
The following are a few ways you can get a loan with no credit.
Most people will tell you what borrowing a significant sum of money from a friend or family member might not be the best idea. If you go about it in the right way, however, it can be one answer to the difficult question, “can I get a loan with no credit?”
When it comes to having someone lend you a helping hand, there are two relatively easy ways to go about getting a loan with no credit.
One of the easiest ways to get a loan with no credit is to have a direct relative co-sign for you. A co-signer enters into an agreement making them responsible for the loan in the event you find yourself unable to pay it off.
While anyone can be your co-signer, it’s generally recommended that you go to a direct relative such as a sibling or parent.
Be certain that the relative co-signing for you acknowledges the risk inherent in the agreement. The loan in your name on which they co-sign will wind up having an effect on their credit report.
And of course, they are taking on full responsibility for the principal balance of the loan in addition to any interest accrued. If you fail to pay back the loan, they will not only be on the hook for the remaining balance, but their credit score could take a hit.
A co-signer with a high credit score will enable you to get almost any loan they might be eligible for themselves. Having a third-party available to cover the cost of the loan in case you cannot do so gives the lender a greater degree of certainty in providing a loan.
Alternatively, you can also ask a friend or family member for a direct personal loan. If you treat this like a formal business transaction it can work out without straining the relationship you have with the person.
It’s best to create a written agreement for the loan. Specific details like how much you intend to borrow, what kind of monthly payments will be made, the date the loan is supposed to be paid off by, and, if appropriate, what collateral you have decided to put up for the loan.
If you really want to get serious, you can have the written agreement looked over by an attorney and notarized at your local notary, making it 100% legal and binding. That way there’s no ambiguity and it’s less likely anyone’s feelings will be hurt if anything goes wrong.
If you’re having trouble getting a loan because you have no credit or bad credit, you may need to put up collateral. A collateral loan is different than an unsecured loan, whereby a creditor’s only recourse in the event of your defaulting will be to pursue legal action against you.
More than anything, lenders want to get their money back after lending it out. They’d rather not deal with having to bring legal action against borrowers who can’t repay their loans. With collateral, the lender has a sort of insurance policy against you defaulting on your loan obligations.
Collateral is defined as an asset that a lender claims the rights to in the event the borrower fails to pay back their balance. Any asset that is allowed by law and accepted by a lender can be used as collateral.
For the most part, lenders have a preference for assets that can be easily valued and sold. A savings account, for example, is a perfect form of collateral because lenders can assess exactly how much it’s worth and collect it easily. The most common types of collateral are:
If you own a business, future payments from customers (also known as receivables)
If you have any assets like these, some lenders may allow you to get a loan with no credit if you’re willing to offer them up as collateral.
If you own a home, you can use this to your advantage. There are many ways to convert the equity in your home into a loan of some kind. The first and most obvious way is to sell your home. You can either find a smaller, more affordable home in your area, or move somewhere that real estate prices are lower.
If you’re age 62 or older, you have the option of taking out a reverse mortgage on your home. A reverse mortgage involves receiving monthly payments while reducing the amount of equity in your home.
If you have parents who are homeowners, they can enact a “sale-leaseback”. This involves a sale of the home followed by a new loan being created for you. Sometimes parents do this as a way to take equity out of their home while they downsize and let their kids enjoy affordable rental rates.
If you own a passenger vehicle, you can always apply for a car title loan. A car title loan is a form of collateral loan that applies specifically to cars, in case you hadn’t guessed. The amount you can borrow depends on the wholesale value of your car.
Now you have a few answers to the question, “can I get a loan with no credit?” While the landscape may look bleak, it certainly isn’t hopeless.
You can always ask a friend or family member to either give you a direct personal loan or co-sign on another loan for you. Some lenders may be more lenient if you offer up collateral. Your home equity can be used to acquire a loan in more ways than one. And last but not least, you can always take out a car title loan with TFC Title Loans.