No Credit Check Loans

It’s common for people considering taking out a loan to be worried about whether a poor credit score will reduce their chances of being approved by a lender. 

Credit scores can take a while to fix – and if you need a loan, you probably need it quickly. 

So, many people end up searching for ‘no credit check loans’ to see if they can get approved for a loan without the background checks, confident in their ability to repay. 

But requesting you undergo a credit check as part of your loan application process is a feature of responsible lending. 

Lenders need to be extra sure that you can afford to pay them back without worsening your financial situation in any way. 

Having to go through this process doesn’t always mean that you will be rejected for a loan by a lender. In fact, they take many other factors into account when deciding whether to lend you any cash. 

In this article, we’ll explain the term ‘no credit check,’ discuss the features of your credit file, and find out how your credit history could impact your lending prospects. 

What are no credit check loans? 

In Britain, ‘no credit check’ loans don’t really exist. 

Even though certain lenders appear to offer them, they have been outlawed for a good while now. 

It’s important to ensure that the company you borrow money from are abiding by regulations set out by the FCA, which require lenders to carry out credit and affordability checks on each and every customer. 

By doing so, companies can be sure that their borrowers are in a position to manage their debt safely and responsibly. 

For this reason, it’s generally in your best interests to undergo an affordability check as part of the loan application process, although it might sound counterproductive. 

If you have a poor credit history, it’s understandable why you may not want to. 

However, these rules are in place to ensure that your credit score doesn’t run the risk of getting worse due to your borrowing, and you don’t get into a spiral of debt. 

Essentially, the rules are there to keep everyone safe and secure whilst paying back debt, or lending money. 

Some lenders do, however, provide loans for people with bad credit. 

While you’ll still need to undergo a credit check, you might be able to get approved even with a low score or patchy credit history via a lender that specialises in poor credit loans. 

It's vital that you’re wary of lenders who appear to offer no credit check loans on their website or in their branches. 

Doing so is either a sign of irresponsible lending practice, or it’s possible that the loans advertised as ‘no credit check’ products will still require you to undergo initial affordability checks to prove your suitability. 

If you need to take out a loan to cover an expense, but are worried about the fact that you have a poor credit history, there are many responsible lenders out there who can help you find a solution. 

Why do loan applications impact your credit score? 

A loan application can result in a hard credit check on your score to ascertain if you can afford it, and too many of these can negatively impact your credit score. 

Why? 

Because it can be a signal to lenders of desperation and irresponsibility with your finances. 

If you have multiple hard checks against your score and you’re applying for loans left right and centre, it can be a signal of poor money management and not being able to keep up with your outgoings. 

This is why it can affect your credit score negatively – a lower score acts as a small warning sign for future potential lenders and can be a red flag on your profile. 

Here’s a bit more detail on how it works: 

Lenders you approach to borrow from usually conduct a hard credit inquiry once you’ve applied for a loan with them. 

A hard credit inquiry is a type of credit check which is recorded on your credit record and reflected in your score. In fact, it can temporarily lower your credit score in the weeks and months following your application. 

When you’ve made your decision and applied for a loan with a lender, the standard practice is for them to then request a copy of your credit report and score from one, or perhaps more, of the major credit bureaus in the UK. 

Taking this step helps the lender to assess your creditworthiness and determine the risk they would be taking on if they lend you money. 

Each instance of a hard credit inquiry can knock a few points off your score, but this shouldn’t deter you from applying if you’ve done your research and are confident that you’ll be accepted. 

With that being said, evidence of multiple hard credit inquiries carried out within a short period of time, such as when you're shopping for a loan online, can have a more significant effect on your credit score. 

This is because it signals to any prospective lenders that you’re a higher lending risk and could be taking on too much debt in a short time. 

It's important to bear in mind that not all credit checks are created equal. Unlike hard credit enquires, soft credit checks don’t impact your credit score at all. 

What is a soft credit check? 

Whilst all lenders are required to ensure that you can afford to repay a loan by carrying out a hard credit check, many use a tool called a ‘soft credit check’ to verify your level of risk as a borrower, at least initially before you fully apply. 

This is a type of credit check which doesn't impact your credit score if a lender, or indeed anyone else, carries one out. 

They are ordinarily used for the purpose of gathering information. 

For example, when you're checking your own credit record, or when a lender is in the process of pre-approving you for a loan, accessing this broad overview of your file would be considered a ‘soft credit check’. 

Soft credit checks are also routinely used by employers, landlords and estate agencies, or insurance companies. 

They use the information they get from the check to verify your identity in some cases, or to assess your risk level and reliability. 

Unlike hard credit checks, which can impact your credit score, soft credit checks only show up on your personal credit report and are not visible to lenders who review your file in the instance where you’re applying for a loan. 

It's important to note that while soft credit checks don't impact your credit score, lots of inquiries, whether soft or hard, can still come across as red flags for lenders and might negatively impact your capacity to get approved for any loans you apply for in future instances. 

Which credit products conduct a soft check? 

• Lenders may conduct a soft credit check to see if you meet their initial criteria for a loan or credit card. This is called pre-approval, but does not guarantee that you’ll get approval for the loan once the hard check has been performed.

• Some lenders on the marketplace allow you to check your payable interest rate or pre-qualify for a personal loan with a soft credit check. But, again, this won’t be a sure-fire way to know whether you’ll get approved once the hard credit check is carried out. 

• Car dealerships and car loan lenders might carry out a soft credit check as part of the pre-approval process for the loan you’ve applied for. However, it’s important to refrain from making any irreversible car purchases before you know for sure whether the loan has been approved. 

• Mortgage lenders could perform a soft credit check when you're in the process of arranging a mortgage in principle. 

• Buy Now Pay Later services only conduct a soft credit check for certain payment methods, allowing you to use their credit products without having a mark on your file. However, it is important to only use these products if you’re certain you can pay them back, as any defaults will have a negative effect on your credit file overall. 

What do lenders base their decision to give you a loan on? 

There are a few central factors that lenders base their decision to give you a loan on. 

• Despite not being the be all and end all, your credit history does play an important role in lenders deciding whether to approve your loan application. Your credit score and credit report provide lenders with a solid idea of how likely you are to repay the loan on time, and in full. 

• As well as your credit record, lenders also look at your income and employment status to assess whether you will have the ability to repay a loan they offer you. Typically, they’ll ask you for some kind of proof that your income will cover the costs. Providing your lender with payslips or bank statements will help verify your income and employment status to them, giving them assurance that you’re responsible. 

• Another factor to bear in mind is your debt-to-income ratio. This is the amount of debt you have in comparison to your wages. Lenders use this ratio to determine whether you can afford to take on any additional debt. Ideally, your debt-to-income ratio should be below 35-40%. 

• If you apply for a secured loan, such as a car loan or a mortgage, lenders will factor in the value of the collateral you're offering to secure the loan with. This is to ensure that they will be able to collect their funds should you default. 

• Lenders may also consider the purpose of you taking out the loan when deciding whether to approve your application. For example, some lenders may be more willing to approve a loan for an item which seems necessary to somebody’s lifestyle, such as a car or a home, rather than for a holiday or a luxury item that you don’t really need. 

It's important to remember that each lender you come across will have their own unique criteria for approving loans their customers request. It’s always a good idea to shop around and compare offers from multiple lenders before making a choice regarding which one you’ll go for. 

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