A high credit score makes it easier to qualify for loans, and you can get access to lower interest rates and higher loan amounts as a result. Some people take time to build their credit scores before applying for a large loan like a mortgage or auto loan, But most people build credit history through credit card transactions and loan payments. Although a great credit score is optimal, it’s better to have no credit than low credit. Can you get loans even if you have no credit history? Short answer: yes, and we’ll discuss some paths you can take to get a personal loan, even if you have no credit.
What Are Personal Loans?
Personal loans provide you with financing to cover any expense. You can use these funds for your business, a vacation, or any other reason. Many borrowers use personal loans to pay off credit card debt since these loans have lower rates. Borrowers must make monthly repayments until they pay off the entire loan. The lender and borrower will agree to a loan length before money exchanges hands.
You can reduce your monthly payments with a lengthier loan term. However, you will pay more interest in the long term. You can pay less interest with a shorter loan term, but you’ll have higher monthly repayments.
What Are Some Common Requirements For Personal Loans?
Financial institutions incur risk with each loan they originate. The borrower can fall behind on payments or default on the loan. Lenders want to feel confident in your ability to repay the loan. Therefore, lenders will review the following information before giving you capital.
Credit Score and History
A credit score reflects the borrower’s ability to manage debt. A high credit score indicates the borrower is likely to repay the debt on time, while a low credit score indicates the opposite. Lenders will need more information to assess borrowers with no credit. People with no credit aren’t necessarily bad at paying off debt. Some of these consumers were never given a chance to manage and repay debt. Paying debts on time is the best way to improve your credit history and maintain a high score.
Most lenders will look at your income over the past 1-2 years. Financial institutions want to see reliable income instead of inconsistency. Borrowers with inconsistent income are at higher risks since a gap can force them to fall behind on loan payments.
The debt-to-income ratio compares your monthly income and debt payments. For example, if you pay $2,000 per month in debt and make $8,000 per month, your debt-to-income ratio is 25%. Lenders have maximum ratios, and if your ratio is out of bounds, you won’t get a loan. Most lenders will give you a personal loan if your debt-to-income ratio is below 40%.
Most personal loans are unsecured and do not require collateral. However, some lenders may ask you to put some collateral on the loan to minimize their risk. If a borrower defaults, the lender claims ownership of the collateral. This loan structure allows banks to claim properties if borrowers fall behind on payments. You won’t have to worry about collateral for most personal loans. However, adding some collateral can lower your personal loan’s interest rate.
Fees and Other Costs
Lenders charge several fees for loan applicants. You will have to pay a small application fee to apply for a loan. If your application gets approved, you will owe an origination fee. This fee is the cost of producing the loan. Loans have some additional fees you might have to pay depending on your situation:
- Prepayment penalty: If you pay the loan early, you’ll owe an extra fee.
- Late payment fee: Lenders use this penalty to discourage people from falling behind on loan payments.
- Returned check fee: If the check you send to the creditor bounces, you’ll incur a returned check fee. This event can also trigger a late payment fee.
Check the loan’s terms before accepting the money. You don’t want to get stuck with higher fees than intended.
Getting First-Time Personal Loans With No Credit History
Building credit puts you in a better position to get a loan, but not everyone has enough time to improve their credit scores. In addition, you may need the money to cover an emergency expense or afford a family vacation sooner. Time is of the essence, and these paths can help you access a personal loan with no credit.
Get One With Your Current Bank Or Credit Union
Banks and credit unions offer loans to people with no credit. You may have to pay a higher interest rate, but banks and credit unions offer some of the lowest rates in the industry. Getting a personal loan and paying on time will strengthen your credit history and help you secure a lower rate for your next loan.
Look For Online Lenders
Online lenders provide more flexibility. However, some of them will ignore your credit score or have more generous qualifications. You can get competitive rates from online lenders, but some charge excessive rates. If a lender doesn’t ask for much information, you should prepare for a high-interest rate. Payday loans are especially notorious for high-interest rates.
Get A Co-Signer
A co-signer with good credit can help you qualify for a loan. Lenders will assess the co-signer’s score and both of your incomes when deciding on your loan’s terms. The co-signer is legally responsible if the borrower cannot pay the loan, making it a risky proposition for the co-signer. You should explain to a potential co-signer how you will manage the debt, so they feel more confident helping you.
You don’t have to offer collateral, but it demonstrates your commitment to paying the loan. Creditors will lower your interest rate and become more accommodating if you don’t have a credit history.
Borrow From Friends and Family
Some borrowers have a large enough network of family and friends to ask for money. This funding source can help you cover affordable short-term expenses instead of going through the traditional banking system. You’ll avoid loan fees and may even get a break on interest depending on who gives you money. You should establish a clear timeline for how you will repay each friend and family member.
Try The Best Alternative – Grain App
Some borrowers would have an easier time qualifying for loans if credit history wasn’t the decisive factor. If you want another way to qualify for loans, Grain can help. Grain, the digital credit card for all, looks at your cash flow to assess your financial health and provides you with a line of credit up to $1,000. Grain has partnerships with over 10,000 banks that can provide you with capital.
Grain does not require a credit check for their lines up to $1,000 of credit since it qualifies you based on cash flow; this naturally enables users to be more mindful of their spending and not overextend, causing insurmountable debt. Grain qualifies you for a line of credit that links to your existing debit card for ease of use. You can download the Grain app to access all of its features.