About 11% of Americans, which accounts for over 26 million people, are credit invincible. Credit invisible is the term used to refer to people with no credit history. An additional 19 million Americans have very limited or outdated credit scores that they are essentially unscorable.
This means that over 45 million people are living without credit scores, which makes qualifying for a loan almost impossible. What if you need a loan? Well, in this guide, we’ll address how to get a loan without credit.
1. Look for Lenders That Specifically Work With No-Credit Borrowers
Several creditors out there are willing to work with no-credit consumers, and you can try applying with them first. These lenders understand that everyone needs financing some of the time, and having no credit history does not necessarily mean you are a problematic borrower. As a result, some of them have designed their loans specifically for no-credit borrowers.
It’s important, however, that you shop around and compare different offers and interest rates. As you look around, you may want to stay away from certain types of no credit loans unless it’s an emergency loan, and you have no other options. Some of these loans include payday loans and auto title loans, as they have super high-interest rates and can easily get you into a vicious cycle of debt.
2. Look for Alternative Data
The fact that you have no credit does not necessarily prove or describe your financial responsibility. Still, modern online creditors are beginning to consider people like you and are offering alternative data loans. These are great no credit loans, and getting approved is quite easy.
With these lenders, you need things like your income, earning potential, savings rate, and retirement balance. All these can help you get approval for a loan as they will show your financial status and responsibility and ability to repay the loan.
3. Offer to Make a Large Down Payment
If you need a large loan, like a mortgage or an auto loan, one of the most significant factors a lender will consider is your down payment. If you offer a large down payment, it’ll reduce the overall amount of money the lender will have to give you. This will, in turn, reduce the overall risk and show that you’re serious about getting the loan and less likely to default.
With a mortgage loan, you may need as much as a 20% down payment, but if you can pay higher, you have a better chance of approval. The same goes for an auto loan, and even though there is no specified standard amount, the more you pay, the better.
4. Go for Manual Underwriting
Manual underwriting involves giving as much past and current financial information to the lender as possible. This is also a viable option if you need a large loan like a mortgage loan.
If you can prove that you’re trustworthy with this information, the lender may not even have to consider your credit or lack thereof. However, you may still need a large down payment and a good reserve of cash as well.
Beyond that, understand that manual underwriting can be a long and tedious process with tons of paperwork and a lot of scrutiny. If you’re confident in your finances, though, you have a high chance of getting approved for the loan you need.
5. Put Down Collateral
Most lenders are willing to give out loans against collateral. If you have something of value you can borrow against, the lender may not have to check your credit score at all. Secured loans are a good option if you need a quick emergency loan, and you can borrow against anything from your car to real estate, collectibles, insurance policies, precious metals, and even stocks.
Secured loans are great no credit loans and may have better interest rates. On the downside, your asset or item will be at risk of confiscation. Weigh all the pros and cons before opting for this type of loan. Even if you have bad credit, you can get bad credit loans instant approval with collateral.
6. Borrow From Your 401(K)
The options above are not available, and you need to know how to get a loan without credit? How about borrowing from your retirement account? The major advantage is that you won’t be dealing with a lender, and no credit score will be considered.
This is like borrowing money from yourself, and any interest you pay will go back to your account. However, you need to stay with your employer for at least five years to pay the loan back. These are better loans with no credit compared to payday loans, title loans, and pawnshop loans.
The downside is that if you pass the due date before clearing it, you’ll have to pay taxes and a 10% penalty. Even worse, if you lose your job before settling the loan, the entire loan will be due in about 60 days, which will be tricky to pay.
7. Look for a Co-Signer
If you have been wondering how to get a loan without credit, have you considered getting a co-signer for the loan? You can ask a trustworthy family member or friend with a good credit history to be your co-applicant. This option can improve your chances of getting an approval with a possible lower interest than you would get on your own.
Most lenders allow co-applicants, although some personal loan lenders may not approve. When searching for lenders, avoid assuming that all of them allow co-signers and inquire in advance.
Also, understand that the co-applicant will be considered partially responsible for the loan. If you default, their credit will suffer as well, so ensure you can keep your trust. These are a great option for establishing a positive payment history.
8. Ask Family and Friends for a Loan
If you need quick cash, it may not be necessary to go through a lender as family members and friends may come through for you. Of course, you need to be sure you can pay back because failure to pay can strain your relationship. If you can draw an agreement and pay back with interest, that would be better.
9. Apply for a Credit Builder Loan
If you want to start building your credit history for future loans, apply for a credit builder loan. Unlike traditional loans, when you get approved for a credit builder loan, the lender will set the money aside in an account instead of giving it to you.
How to Get a Loan Without Credit
Now you know how to get a loan without credit. All these options are viable, and as you can see, they are quite many. One of them is bound to work for you, depending on the kind of loan you need. Besides, they are great ways to start building your credit and make way for better loans in the future.
Now that you know all the options available, if you need to learn more about personal finance, investing or money management, please check out our blog section. We promise you won’t be disappointed!