Most personal loan lenders check your credit -- so how can you get a loan with no credit score? Find out here.
Most personal loan lenders require you to have at least fair or good credit to get approved for a loan. But if you need to get a personal loan and don’t have a strong credit history, you aren’t totally out of luck. Here are some options for getting a personal loan with no credit score:
- Credit builder loans: These loans are specifically designed to help you build credit. You’re approved for a loan, make payments on it over time, and only after you’ve paid it off do you receive the funding.
- Secured loans: These loans allow you to borrow, but you have to pledge assets as collateral.
- Loans from lenders that consider alternative criteria: There are lenders that look beyond your credit score and consider other factors when deciding whether to let you borrow.
- Loans with a cosigner: A cosigner is legally responsible for loan repayment along with you. You can get approved for loans you couldn’t otherwise get on your own if you have a cosigner with better credit.
Let’s take a look at each of these options to understand more about how they work and who they’re right for.
Credit builder loans
Credit builder loans don't give you up-front access to funds. So they aren’t the right choice if you need to borrow now to cover essential expenses.
With a credit builder loan, you apply and get approved for a small loan that typically has a short repayment timeline. You make payments towards the loan, sometimes also paying a small amount of interest. After you’ve made all the payments, you get access to the borrowed funds.
This is essentially a form of forced savings. The benefit of credit builder loans is that they help you build credit. If you pay your loan on time, you’ll have a positive payment history that helps you boost your credit score. You’ll also get back the money you made as payments minus whatever the lender charges for the loan. Lenders usually give back most or all of the interest you paid minus any fees assessed.
Secured loans are also good for building credit but may not be the best option if you're short on cash and need a loan to help you through a tough spot.
You have to pledge assets as collateral for a secured loan. That usually means you need to have money in a special bank or savings account that you give the lender an ownership interest in. The problem, of course, is that you need to have the money to serve as collateral and you’re tying up that money while you pay back the loan.
Again, secured loans are a great option if you need to build credit. Lenders report your payments to credit reporting agencies and a positive payment history will increase your credit score. That gives you the opportunity to borrow in the future.
Loans from lenders that consider alternative criteria
Some lenders will give you a traditional unsecured personal loan even if you don’t have a credit history or credit score.
Some of these lenders market to students. They might consider the school you attend and your earning potential when determining whether to approve you. Others look at your income and whether you have a bank account and a reliable source of employment.
Many lenders that offer traditional loans to borrowers with no credit history charge high fees or exorbitant interest rates. This makes borrowing extremely expensive. Make sure you
- understand the total cost of the loan,
- ensure you can afford the payments, and
- avoid taking out a high-interest loan unless you have no other choice.
Loans with a cosigner
Applying with a cosigner can be the best way to get a traditional personal loan when you have no credit history. When you apply with a cosigner, you’re not the only one legally responsible for paying back the loan. The cosigner also shares responsibility with you for the debt. If you don’t pay it back, the lender can go after the cosigner to try to collect.
The cosigner’s credit and income will be considered along with yours when you apply for the personal loan. If the cosigner is a well-qualified borrower, you should get approved at a reasonable interest rate for the loan you need.
Of course, you don’t want to hurt the cosigner’s credit or make him or her regret vouching for you. It’s really important to never miss a payment or make other mistakes when paying back the loan.
If you’re responsible about repayment, the cosigner will face no real adverse consequences for cosigning. And you’ll build your own credit history so you can qualify to borrow on your own in the future.
Why is it so hard to get a personal loan with no credit score?
Getting a personal loan with no credit score is difficult because lenders use your credit history and score to decide if you’re likely to repay the loan or default on it. If you don’t have a solid credit history, lenders have no way to tell if you’ll pay back the loan as promised.
They may not want to lend you money in the face of this uncertainty. If they do, it could be at very high interest rates.
Now you know your options for getting a personal loan with no credit score
There are options for getting a personal loan with no credit score. You can apply for a secured loan or credit builder loan if you have funds to use as collateral or don’t need to borrow the cash right away.
Or you can apply with a cosigner or look for a loan from a lender that looks beyond credit history in deciding whether to approve you for a loan. The right option depends on what your goals are for borrowing and when you need the money from the loaned funds.