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Unfortunately, when it comes to personal loans that offer guaranteed approvals without a credit check, they’re almost always too good to be true. At best, they’ll saddle you with incredibly high interest rates and at worst they can end up being outright scams.
If you’re shopping around for a personal loan, make sure you’re up to speed on how to identify risky or predatory lenders from legitimate ones.
What is no credit check financing?
Before diving in and exploring some of the risks associated with these types of loans, let’s clarify what we mean by “no credit check financing.”
In a nutshell, no credit check financing is when a lender agrees to loan a borrower a sum of money without basing the decision to loan that money on the borrower’s credit rating. This means borrowers with poor credit, bad credit, or no credit can apply and likely get approved.
No credit check financing comes in a few different forms and some are predatory or outright scams, while others are on the level yet still quite risky for borrowers.
What types of loans don’t require a credit check?
The two most common types of loans that don’t require credit checks are payday loans and auto-title loans. Before you sign on any dotted line for a payday loan or auto-title loan, know there are likely better options available to you.
Payday loans are typically for smaller dollar amounts with ultra-short repayment windows of a week or two and sky-high interest rates. And we mean sky-high. It’s not uncommon to see payday loans with interest rates of more than 400% APR, which can quickly put the borrower in a position where it’s difficult to fully pay off the loan. With such short repayment timelines, it can be easy to miss a due date. That’s when fees and charges can start to snowball. All of a sudden you’re caught in a debt trap.
Auto-title loans are also best avoided if possible. With this type of loan, you use your vehicle as collateral against the loan—if you own it, of course. So if you default on loan payments the lender has the right to seize your vehicle. In addition to this risk, auto-title loans typically have very high interest rates and fees that can make repayment difficult.
Is it possible to get a personal loan with no credit check?
Getting a personal loan without a credit check—and avoiding risky alternatives like payday loans or auto-title loans—is certainly possible, though not always easy.
Instead of using your credit rating to assess your ability to repay a loan, lenders that offer personal loans without a credit check will instead look at other factors, such as your proof of employment, income, and the amount of debt you already have.
These loans will often carry high interest rates as well but with longer repayment windows. This makes them far more manageable, as you can pay back the loan slowly in installments over the course of months or years. Unfortunately, if you already have a decent amount of debt or a lower income, obtaining one of these loans can be quite difficult.
The problem with “no credit check” lenders
Sky-high interest rates and fees aren’t the only reasons you should avoid getting a loan from a lender who doesn’t require a credit check. One of the biggest problems with “no credit check” lenders is they often don’t properly report your repayment activity to credit bureaus (or even worse, sometimes they don’t report it at all).
That’s a huge problem, especially if you have bad credit or no credit. Repaying loans in full (and not missing payments) is the biggest factor that determines your credit rating. It’s also the fastest way to rebuild your credit. But it depends on your lender reporting your repayment activity to the two credit bureaus in Canada—Equifax and TransUnion.
If you take out high-interest “no credit check” loan because you have bad credit, and you manage to make all of your payments but the lender isn’t reporting your activity, then all your hard work in repaying that loan won’t result in improved credit.
On the other hand, if you fail to make payments, your debt will be handed over to a collections agency, and that will show up on your credit report.
5 red flags of a predatory no credit check lender
No credit check loans are risky at best and predatory at worst. Sometimes, they can even be outright scams. Telling the legitimate lenders or financial institutions offering risky loans apart from the predatory lenders and scammers can be harder than you think.
When you’re shopping around for a loan and you see lenders promising guaranteed approvals without a credit check, make sure you’re on the lookout for these red flags.
1. The lender isn’t licensed
Several provinces in Canada have specific licensing requirements in place for lenders and alternative lenders. If a lender isn’t licensed to operate or issue loans in your province, that’s a significant red flag. You can usually check with your province’s office of consumer protection or consumer affairs whether a lender is licensed.
2. The reviews are bad or can't be found
Before you give your business to any online company, checking the reviews is a rule of thumb. Google Reviews is probably your best bet when you want to check the reputation of an online lender. You could also check other independent ratings and reviews platforms like Feefo and Trustpilot. If a lender's reviews are negative, or worse, non-existent, you might want to reconsider becoming one of their customers.
3. You feel pressured to sign
If you’re being pressured to sign on the dotted line at any point that’s another big red flag. It could even be a warning sign of a scam. Both predatory lenders and scammers want you to make your decisions quickly and without time to think or reconsider.
4. There are hidden fees
When you’re reviewing the documents of a loan offer, make sure you carefully review the terms and conditions—especially the fine print. Predatory “no credit check loans” can often carry a lot of hidden fees that many borrowers don’t discover until it’s too late. If there are significant hidden fees attached to the loan, you might want to walk away or keep looking for alternatives.
5. The lender doesn’t ask about your income
If a lender is offering you a no credit check loan but doesn’t ask you provide proof of your income then something is amiss. Legitimate and responsible lenders will want to know that you can afford to repay the loan, either by assessing your credit rating or things like your income and employment.
Loans with guaranteed approval in Canada: the exception
Not all loan products that offer guaranteed approval are a cause for concern.
Credit-building products, such as installment credit programs and secured credit cards, often boast 100% approval rates because the risk for the lender is low or non-existent.
Secured credit cards offer anyone the chance to get approved for the purpose of building (or rebuilding) their credit score. For example, anyone can get approved for a secured credit card with a $1,000 limit because the credit card issuer will request an upfront security deposit of $1,000 dollars that will be held collateral.
An installment credit program, on the other hand, does not require a security deposit because no credit is made available to the customer. Instead, the customer makes small payments which get reported to the credit bureaus to help the customer build credit. Each payment gets saved for the customer to access at the end of the program.
A better alternative to no credit check personal loans
Fortunately, there are better alternatives available than no credit check loans with guaranteed approval. If your credit history is less than perfect, you might think you have no other choice, but even if you have a bad credit score you don’t have to resort to using a risky or predatory “no credit check” lender at all. Instead, you might want to consider using an online lender that specializes in approving bad credit applicants.
With Spring, you can do it all from home by applying online with a simple application that only takes a couple of minutes and will not impact your credit score. Approvals and funding are fast (usually same day), plus you’ll get a flexible payment schedule to help you manage repaying the loan over time. Best of all, Spring reports all of your repayment activity to the major credit bureaus in Canada, so you’ll be building good credit as you make your payments on-time.
