No credit check loan – sounds great, but it is not. There are countless reasons why you should never take out a loan without having a credit check done. It’s true that every time a credit check is run on your profile, you lose some points from your score – but that is healthy. No credit check means the lender or credit provider will not conduct any check on your profile before giving you a loan. Your credit score will not be affected and there will be no footprints on your record at all. But that’s not what happens in reality. In the United Kingdom, the financial regulatory body – the Financial Conduct Authority – has made it mandatory for the lenders and financial institutions to perform a credit check before giving their decision to an applicant. Lending money to individuals who do not have a good credit score may often lead the borrower to a debt trap.
In this article, we will discuss:
- What is wrong in borrowing a no credit check loan?
- What are the different credit checks?
- How to avoid scams?
- Finding the right lender
What is Wrong in Borrowing a No Credit Check Loan?
A no credit check is actually illegal as no lender who is authorised by the Financial Conduct Authority has the right to lend money to a borrower without conducting necessary credit checks. Credit checks are essential to know the borrower’s eligibility to borrow and repay the loan and also it gives the lender an idea of how the borrower has dealt with debts in the past. Basis on the information they get from the borrowers’ profile, they shape their decision. If you are planning to borrow a Payday Loan with No Credit Check then reconsider your decision. It may be a trap and you may become a victim of a fraud.
Another reason that makes such types of loan arrangement dangerous for your financial fitness is – the Annual Percentage Rate (APR). As the lenders do not conduct checks on your profile, they charge sky high-interest rates on the loan. That is because of the risk they are taking on without checking your profile before lending. You may end up repaying way more than you had borrowed initially and this will only harm your financial health rather than reshaping it in a better way.
What are the Different Credit Checks?
Generally, there are 2 types of credit checks:
- Soft credit check
- Hard credit check
A soft credit check, also known as soft search, is a formal review of your credit profile. This allows the lender to get an overview or snapshot of your borrowing history. This check doesn’t leave any footprint on your records and hence, it doesn’t impact your credit score. For example, if a lender has run a soft credit check on your profile before approving your loan and then he rejects your loan application. You apply for a loan to a different lender who will review your credit profile – but he will not be able to see that your previous lender had declined your loan application. This helps you as the latter lender will not form any negative impression about you.
However, a hard credit check, also known as hard search, is a complete and thorough review of your credit record. This is mandatory by the FCA and it has to be carried out before a licensed lender gives their final approval to your loan application. A hard credit check leaves footprints on your record that is visible to the viewer who is reviewing your profile. Also, it shaves off a few points from your score every time it is conducted.
How to Avoid Scams?
Taking out a loan from a registered lender may not put you in unnecessary trouble. Beware of offers of no credit check loans. You might find some lenders who will want you to pay upfront fees and additional charges before even disbursing the funds to your bank account. There have been cases where a potential borrower had paid everything but they never received the loan from the lender.
Whenever you get an offer from a lender or even if you are dealing with a loan broker, check their details about authenticity on the Financial Services Register. If you do not find the firm registered with the FCA, it is better that you immediately report it to the financial watchdog and avoid dealing with such firms. Reputable lenders will always tell you in advance about their fees and charges and they will never ask you to take a prompt decision. They respect their borrowers, hence, they will be happy to wait for your answer after you receive their quotes.
Finding the Right Lender
The most important segment of a loan borrowing process is to find the right lender. With so many options easily available online, it creates confusion. Choose a lender who is FCA authorised and by keeping into account your own financial requirements. If you do not have a good credit score, you can find lenders who offer Payday Loan for Bad Credit. The rate of interest they levy on the amount may be high, so, be careful before you sign on the dotted line.
The Bottom Line
Always borrow an amount that you need and before borrowing try alternatives that are available to you. It is always safe and wise to ask your friends and family for helping you out before you decide to take out a loan. Payday loans generally attract a high rate of interest. If you fail to make timely repayments, your credit score will be ruined and it will get extremely difficult for you to get a loan in the future. Build an emergency fund by setting aside a specific amount of money every month. You can use these funds whenever you are hit by an emergency and you need money immediately. Be a responsible borrower and go through the Terms & Conditions offered by the lender before you enter into a legal deal with them.