Having no credit doesn’t mean having poor credit. In fact, the former shows better creditworthiness than the latter. Often, people with no credit prefer using cash, paying through their debit cards, and just not opting for loans.
While these may sound positive, it may cause them not to have a credit history, which is a staple loan requirement. Chances are if a person doesn’t have previous records on their borrowing history, taking out instant personal loans can be somewhat difficult. However, it’s still possible. Here are five ways to get personal loans with no credit:
Leveraging Personal Income
Your salary can be a major deciding factor on whether you can get a personal loan or not. Lenders would primarily check your creditworthiness through your financial stability, which is determined by your income.
As long as your repayment capability is proven, you can be easily granted a personal loan, even without a credit score. All you need to do is hand in important documents, specifically your proof of income. It can be your pay stubs, salary certificate, or tax return for the past two financial years. Other lenders may also require bank statements and education certificates.
Cosigning A Loan
One of the effects of having a bad credit score is that lenders are more likely unwilling to grant you a loan. They usually consider people with a poor credit as high-risk borrowers. Asking for help from your creditworthy family member or friends helps with this. Doing so is called cosigning a loan.
When cosigning a loan, you leverage the creditworthiness of another creditworthy individual on your behalf. It would not only help you qualify for a personal loan, but also helps you to snag a lower interest rate and establish your credit.
While cosigning a loan benefits you a lot, it puts the cosigner’s credit on the line. For example, during loan approval, the hard pull on the cosigner’s credit can already ding their score. Additionally, any missed payment can automatically wreck your cosigner’s credit.
Keep in mind that you’re using your cosigner’s credit with this type of loan. Be extra careful when making repayments in full and on time. More often than not, a cosigning relationship can be threatening from both a financial and relational perspective.
Opting For Non-Traditional Credit History
Other lenders opt for non-traditional credit history to evaluate a borrower’s creditworthiness. To do so, financial institutions would assess a borrower’s payment history (i.e., bills, utilities, or accommodation), bank account activities, or other alternative data, rather than the borrower’s income.
In the mortgage industry, borrowing with no credit is common. However, home loans like USDA, VA, or FH would usually offer manual underwriting. Considering this, better prepare the following upfront:
- Recent W-2 (Wage and Tax Statement)
- Recent Form 1040 (IRS tax form)
- Recent Pay Stubs (at least for the last 4-6 salaries)
- Recent Bank Statements (at least for the last three to six months)
- Rental Payment History (for the last 1-2 years)
- Utility Payment History (for 1-2 years)
Directly contact a lender so you can get a non-traditional credit history loan approval. Even better, locate a credit union or bank that offers this kind of loan and has a local branch in your area. This makes communication better and faster, instead of going back and forth from one city to another.
Applying For Payday Alternative Loan (PAL)
If you don’t want to be stuck in high-cost expensive payday loans, payday alternative loans (PALs) may solve your financial problem. You can borrow up to $1000 and repay the loan within 1-6 months. Application fees don’t typically exceed $20, as well.
What’s more, you will get an interest rate of 28% at most, unlike other payday loans. The only downfall is that you have to be a credit union member for at least 30 days. If you’re not a credit union member and you need immediate cash, PAL isn’t the best option for you.
Putting Down Collateral
Even with no credit, you can obtain a secured loan by collateralizing something of value. Lenders allowing collateral may also offer better interest rates or terms than any other financing options.
Here are some valuable assets that you can put down as a collateral:
- Gold, silver, or other precious metals
- Home or undeveloped properties
- Insurance policies
- Bank accounts
- Stocks, bonds, or mutual funds
As much as possible, pay on time. The last thing you would want to do is put your collateral at risk. Also, make pawnshop loans and predatory title loans as your last resort. Most of the time, they charge unreasonably high rates, which may put you on a financial treadmill.
Taking out a loan without a credit score can be especially tricky. Hence, there are different ways that allow you to take out a loan. Each of the financing options above will enable you to build a solid credit profile after 6-12 months on average. Conversely, if you just want to establish your credit and don’t need quick cash, you can opt for a credit-builder loan first with a credit union or bank, instead.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.