Are No-Credit-Check Personal Loans Legit?

If you have a low credit score but need to borrow money, you may be attracted by advertisements of ‘no-credit-check personal loans.’ It’s true that some Canadian lenders will allow you to borrow money without conducting a credit inquiry. However, a word of caution before you apply: These types of loans may be much easier to get, but they can also be more expensive and risky than a traditional loan.

How a no-credit-check personal loan works

A no-credit-check personal loan allows you to borrow money without having to meet minimum credit score or history requirements.

Typical lenders, like banks and credit unions, will require a credit check when you apply for a personal loan. If you have a good credit score, this a credit check is no cause for concern. However, if you have a low credit score or haven’t yet started to build a credit profile, it might jeopardize your ability to get approved.

Another concern is that multiple hard inquiries can actually reduce your credit score. If you have been shopping around and multiple hard inquiries have been conducted on your credit report recently, then it could be a red flag to a potential lender who is trying to assess your creditworthiness.

This is where a no-credit-check personal loan comes into play. Typically, these loans are offered by alternative or pricate lenders in the form of payday loans, secured personal loans, car title loans, or guarantor loans.

Nerdy tip: No-credit-check personal loans are often marketed using phrases like “personal loans with guaranteed approval” and “fast cash,” which can make them seem incredibly attractive to someone with limited financing options.

» MORE: What to know about getting a personal loan online

Are personal loans with no credit check legitimate?

Yes, personal loans with no credit check are a legitimate financial product in Canada. However, they also tend to be riskier and more expensive in the long run: Borrowers need to be incredibly cautious when considering these loans, and ensure that they can pay them back properly.

Interest rates

Personal loans with no credit check tend to have significantly higher interest rates. Because the lender does not evaluate your credit score and history, they are less confident in your ability to pay back the loan — and they charge you more to take on that risk. The rates on no-credit-check loans are often described as ‘predatory’ and can result in huge debt if you are unable to pay back the loan in a timely manner.

Risk of property loss

In other cases, you may put something valuable up as collateral to secure the no-credit-check personal loan. This could be a car, other property, and even your home. Should you default on your payments, you could lose your property.

Risk to co-signers

If you choose a guarantor loan, you have to have someone else co-sign the loan and agree to cover the costs if you are unable to pay. So, if you default on your loan, the debt falls to your guarantor which can be incredibly risky for their financial situation.

Fees

When it comes to personal loans with no credit checks you also need to be mindful of any hidden fees as well as the terms and payment agreements which tend to be much more restrictive.

Should I get a personal loan with no credit check?

Sometimes, a no-credit-check loan is your only option. Still, it’s important to understand the risks and the potential repercussion before applying.

If you are considering getting a personal loan with no credit check then ask yourself the following:

Do you really need the money now? Or can the purchase/need wait until you have saved up or can qualify for a less-risky loan?
Do you have the ability to pay back the loan on time and in full to avoid adding more to your debt load? If not, it may be best to abstain or seek another financing solution.

If you do need the money right away and are confident in your ability to pay it back, then it will probably be OK. However, if you are unsure of your ability to pay it back, then it would be in your best interest to avoid these types of loans. The extremely high interest rate and potential loss of your car or other property is likely not worth the risk.

So, what are alternatives to personal loans with no credit check? Well, you can look to bad credit loans which are offered by some B-list or subprime lenders. If you are still struggling it would also be a good idea to reach out to a financial advisor or credit counsellor to discuss your options.

If you don’t need the money right away, then take the time to work on building your credit. Secured credit cards are just one example of a financial product you can use to strengthen your credit score.

Payday loans, secured personal loans, car title loans, and guarantor loans are all examples of types of loans that you may be able to get without a credit check in Canada.

Even if the lender does not perform a credit check, you may be asked to show proof of income, proof of employment, or bank statements. You will also need personal identification and address (recent bills will show this) as well as information about the co-signer or assets you are using as collateral.