There are a handful of lenders who can provide loans without a credit check, but they will usually have a specific criteria such as having a guarantor or needing collateral such as a car or property, otherwise known as secured loans.
At The One Stop Money Shop, we will carry out a series of credit checks to determine the eligibility of our customers. We want to ensure that customers can afford to repay and will not struggle to keep up with repayments, since this can have a much bigger and worse impact on an individual’s finances.
Why is a credit check carried out by lenders?
Carrying out a credit check is a very important step amongst most lenders, as it ensures that you meet affordability criteria. This means that the lender knows that you can afford to take out the loan that you are applying for, repay the loan on time and without falling into financial difficulty.
A lender is a business and they want to lend out money and get their repayments on time. When a loan is unsecured and there is no collateral, they are essentially giving a few hundred or thousand pounds upfront with quite high risk. With a credit check, they have an indication of how well the person pays and this can be used to determine whether they lend to the person, how much, how long for and what rates.
A credit check takes into account how well you have paid other forms of loans and credit in the past including personal loans, payday loans, mobile phone bills, credit cards and any other financial obligations.
Credit reports are updated in real-time through the 3 main credit reference agencies in the UK of Experian, Equifax and CallCredit.
If you have recently defaulted on a loan or credit card payment, this information is made available instantly on your credit report, so if you apply for new loans, the lender will be able to see this information and make a decision accordingly.
What is involved in a credit check?
A credit check is carried out by a lender when you apply for certain types of credit. This is done through one of the three main credit reference agencies in the UK who hold information on your financial credit file.
This information is used to see whether to approve or decline your loan application. The information on your credit file includes:
- Full name
- Date of birth
- Any bankruptcies
- All loan, credit cards, and mortgage accounts currently open
- Previous applications searches
- Current overdrafts
- Any missed payments
- Outstanding debt
- Any joint accounts you have with other people
- Existing forms of credit you have available to you
- Defaults on loan repayments
Will a credit check leave a search footprint?
Yes, whenever a lender carries out a credit check, this leaves a footprint on your file that is visible to other companies that they have made a search on your profile.
This is known as a hard search footprint, which stays on your credit file for approximately 12 months. This is different from a soft search footprint, that does not leave a mark on your file and is often used for eligibility calculators and if someone you have a joint account with is applying for a product.
What loans are available without a credit check?
Guarantor loans are usually aimed at those with bad credit who may have difficulty otherwise getting access to a loan. The main applicant nominates a ‘guarantor’ to back their loan. This is typically a spouse or family member, who has a good credit rating, is a homeowner and most importantly, willing and aware that they will need to pay back the loan if you can’t.
Guarantor loans usually have lower rates of interest than typical for those with a poor credit rating, as the loan is being backed by someone with a good credit score.
Secured loans (car or home loans)
A secured loan requires you to provide collateral in the form of a high-value asset such as a piece of jewellery, a vehicle or your property against the loan. This is to mitigate the lender’s risk in lending to you. In return, you can expect to receive a lower rate of interest and better overall terms for the loan.
Secured loans tend to also have lower rates of interest than you would have with a payday or unsecured loan, but are also associated with higher levels of risk.
However, it is extremely important that you are aware that if you end up defaulting on repayments, the lender has the legal right to repossess the items you put as collateral for the loan to recuperate the debt. This could mean losing your home if you are not careful.