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- If you want to get a loan without a loan, first of all look for lenders who accept a non-traditional credit history such as rent or ancillary expense payments.
- Other loan options for borrowers with limited credit history include Payday Alternative Loans (PALs), secured loans, and 401 (k) loans.
- To build a loan from scratch, try applying for a secured credit card or loan protection, or ask to be added as an authorized user on someone else’s credit card.
- Get Your Free Credit Score With CreditKarma »
There are many reasons why you may not have a credit rating. On the one hand, you may be young or you may have recently moved to the US from overseas and haven’t had a chance to build a credit profile.
On the flip side, you might be someone who prefers to pay for their stuff with cash or a debit card, and you’ve just never applied for a credit card. No credit does not mean that you are financially irresponsible. In fact, many people with no credit are incredibly creditworthy.
But while having no credit is much better than having bad credit, most lenders use credit ratings in their credit decisions. And having no credit can make it harder to get approved for a mortgage, car loan, personal loan, credit card, or any other type of loan.
But you will be surprised to learn that it is possible to get a loan without a loan. Below we discuss your best options if you need a loan today before we go over some ways to build your credit as you are trying to prepare for a loan.
How to get a loan with no credit
If you are looking for a loan with no credit history, here are five strategies that are worth considering.
1. Look for lenders who accept non-traditional credit history
Even without credit, there may be other ways to prove to a bank that you are a trustworthy borrower. Some lenders accept alternative data to help assess a borrower’s risk, such as:
To get a loan approved using your non-traditional credit history, you may need to contact a lender directly. And even better, finding a bank or credit union that has a local branch near you so you can speak to someone face-to-face.
If you are planning on applying for a loan from a lender that offers manual underwriting, here are some documents you will likely want to gather upfront:
- Last W-2s
- Current tax returns
- The last four to six pay slips
- Last three to six monthly bank statements
- Rental payment history for the past 12 to 24 months
- Payment history for the last 12 to 24 months
What loans are there without a loan?
Manual underwriting is most common in the mortgage industry. The state-sponsored FHA, VA, and USDA loan programs each consider borrowers with no credit. However, in order to get approval, all of your alternative credit information may need to be verified against a non-traditional third party credit report.
If you are looking to take out a personal loan with a thin credit file, payday loans are not your only option. Several online lenders are known to lend money to borrowers with limited credit history, including Avant, Prosper, Upstart, and Lending Club.
Some lenders may even offer personal loans with no credit check. But you should check the fine print with these loans before signing on the dotted line. Loans without credit checks could be more likely to have high interest rates and fees or unattractive terms.
2. Apply for an Alternative Payday Loan (PAL) from your credit union
If you are in need of emergency cash and happen to be a member of a credit union, you should check to see if they offer Alternative Payday Loans (PALs). PALs are small, short-term loans that are designed to provide an alternative to expensive payday loans.
These unsecured loans have terms of one to six months and the amounts borrowed can range from $ 200 to $ 1,000. Unlike payday loans, the PAL application fees cannot exceed $ 20 and the maximum interest rate is 28%.
However, you won’t qualify for a PAL unless you’ve been a member of your credit union for at least a month. So, if you’re not already a member of a credit union, a PAL isn’t a great option if you need cash right away.
3. Get a secured loan by providing collateral
Since collateral is not required for unsecured loans, lenders typically require borrowers to have high credit ratings to mitigate their risk. However, being able to put something of value as collateral can help you secure a loan even without a loan.
Here are some examples of assets a lender can accept as collateral for a secured loan:
- Real estate (house or vacant lot)
- Bank accounts
- Stocks, bonds, or mutual funds
- Insurance policies
- Gold, silver or other precious metals
In addition to milder credit requirements, secured loans can also offer better interest rates or terms. However, the downside is that if you miss a payment or default on payment, your collateral is at risk.
Make sure you weigh the pros and cons of having a secured loan before taking out one. And try to stay away from predatory title loans or pawnbrokers who can put you on a financial treadmill with exorbitant interest rates.
4. Borrow from your 401 (k)
If you don’t have credit and need quick access to a large amount of cash, a 401 (k) loan might be a legitimate option. However, there are some pros and cons that you need to consider before taking out any loan from your retirement.
The biggest advantage of 401 (k) loans is that you don’t have to deal with a lender so there is no credit requirement. With a 401 (k) loan, you are actually borrowing yourself, so the “interest” you pay goes straight to your 401 (k) account. As long as you stay with your employer, you also have up to five years to repay the loan in full.
If you are planning on paying back the money quickly, a 401 (k) loan could be a far cheaper loan option than a payday loan, title loan, or pawnshop loan. Note, however, that if you do not replace the withdrawn by the due date, you will have to pay tax on the money plus a 10% penalty.
Even if you lose your job or leave your employer, the entire loan will come due and must be repaid in full by the tax return due date for the year. So if your work situation is unstable, borrowing from your 401 (k) becomes a riskier move.
5. Add a creditworthy co-signer to your loan application
Adding a creditworthy family member or friend as a co-signer can help you get credit when you don’t have credit. Keep in mind, however, that if you fail to make payments or default on the loan, your co-signer’s own creditworthiness will also be damaged.
Entering into a co-signing relationship can be dangerous from both a financial and a relational perspective. If you do decide to ask someone to co-sign for you, extra care should be taken to ensure that your payments are always complete and on time.
How to Build Loans from the Ground Up
If you don’t need to get a loan right away, waiting until you have had time to build up a loan history may be a better option. One way to build credit from scratch is to apply for a secured credit card.
Since borrowers must make a cash deposit to get a secured card, lenders are more willing to offer it to consumers who have little or no credit. And as long as you choose to have a card issuer who reports to the credit bureaus, your positive payment history can help you build a positive score quickly.
Another way to build credit is to take out a credit creation loan from a bank or credit union.
Finally, you can request to be added as an authorized user on someone else’s credit card account. Just make sure that the card issuer reports authorized user activity to the credit bureaus.
Either of these options can help you build solid creditworthiness in six to twelve months, or maybe even faster. And given the additional credit options that could be available to you with a strong credit score, it may be best to postpone your loan application until then if you can afford to wait.