Although credit checks form the backbone of most loan approval decisions, there are still some lenders operating in Australia that are willing to give out no credit check loans. These loans, as the name suggests, are given out by the lender without conducting any credit checks on the borrower’s credit history.
For those with a poor credit score, a no credit check loan is a great option as the approval decision is based on other financial factors, such as the applicant’s income and recent financial history. It is possible that no credit check loans may carry stricter eligibility criteria, such as a minimum eligible income coming in from a specific form of employment. It’s a good idea to check these requirements before selecting a lender.
Since the risk is higher for the lender of a no credit check loan compared to lenders that do conduct a credit check on all loan applications, the applicable interest rates and charges might also be higher on no credit check loans.
How Are Some Lenders Able To Provide No Credit Check Loans?
It might seem absurd that some lenders are able to provide no credit check loans. However, these lenders specialize in providing loans to borrowers with a bad credit history by evaluating other financial indicators instead, such as income and recent credit behavior. Since the bad credit score of the borrower does not have any impact on the approval decision, lenders don’t even bother conducting a credit check on such applications.
Understandably, the risk is higher for lenders when they don’t conduct credit checks. To compensate for this additional risk, lenders charge a proportionately higher interest rate and fees as well. However, these fees are still regulated as per the requirements set by ASIC.
Available Options for No Credit Check Loans
Lenders in Australia are willing to provide a loan without evaluating the credit history of the borrower in three forms: an unsecured loan, a secured loan, or a payday loan.
A payday loan is a short-term loan given by lenders in a very small amount, usually not exceeding a period of one year and an amount of $5,000, and starting at amounts as low as $100 with a lending period as short as 6 days.
An unsecured loan is similar to a payday loan, although the loan amount that can be borrowed goes up to $10,000, or even more in the case of some lenders. Since the loan amount is larger in the case of unsecured personal loans, the interest rate charged by borrowers is higher as well to compensate for the additional risk. However, for all loan amounts exceeding the $5,000 amount, the maximum interest rate charged is usually 48% per year.
A secured loan significantly reduces the risk for the lender as the borrower is required to pledge a personal asset as collateral against the loan amount. Since the lender’s risk is partially or fully covered, the rates and fees charged on the loan are substantially low, and the lender does not need to conduct a credit check to give out the loan.
Which No Credit Check Loan Is Right For You?
There are a few pertinent questions that borrowers should ask while evaluating different no credit check loan options.
How much in fees will be charged on the loan?
The sign of a good lender is transparency in the quotation of all the rates and fees associated with the loan. A lender might charge an establishment fee and also a monthly fee, but may also have an additional interest rate charge with a few contingent charges as well.
What are the lending terms?
Each loan type and its lender sets a unique lending term that must be assessed by the borrower to evaluate the total charges applicable on a loan over its entire term. Borrowers should only sign up for a loan term that they can realistically afford, especially considering the fact that a longer loan term means higher charges and fees.
Is there repayment flexibility with the loan?
There are two factors to consider when it comes to flexibility in the frequency of repayments. First, some lenders offer borrowers the option to choose their repayment date on their own, while others set a fixed repayment date without considering the borrower’s individual circumstances. Second, it is always better if the lender allows loan amounts to be paid earlier than the due date, allowing borrowers to reduce their outstanding loan obligation which reduces the interest and fees charged on the loan over its term. Some lenders may charge an additional fee on early repayment.
Does the lender hold a trustworthy reputation in the industry?
While a lender may promise the world, many lenders exist in the market that are offering loans with the purpose of trapping borrowers into an endless cycle of debt as a way of maximizing profits. Most such lenders offer no credit check loans, enticing many with a bad credit rating to sign up for their services. It is better to avoid such lenders.
The Application Process and Requirements
Every lender and loan type has its own application process, although most require the same set of information to formulate a loan approval decision. Most lenders and no credit check loan types require borrowers to fulfill the following eligibility criteria. Applicants must:
- Be over the age of 18
- Provide proof of regular income, over 50% of which comes from sources other than Centrelink or any other government benefits.
- Submit bank statements of at least three to six months. Lenders use this information to evaluate the applicant’s income and expense equation and the amount in excess left for other uses at the end of every month. Recent bank statements also provide great insight into the applicant’s recent financial health and behavior.
- Provide details of all existing liabilities, including credit card debt and any other outstanding loan obligations.
A no credit check loan provider is by no means an easier lender to qualify for a loan. Such lenders focus on other financial factors to evaluate an individual’s borrowing abilities. This makes no credit check loans a great option for those who have a bad credit rating yet have a stable financial condition, at least over the past six months.