Being “credit invisible” — a term that describes borrowers who don’t enough financial history to produce a credit score — is a problem that affects 11% of American adults, or 26 million people, according to the Consumer Financial Protection Bureau.
Your credit score measures how likely you are to pay back debt, so getting a loan with no credit history can be difficult. Those who are credit invisible might have to work harder to secure a loan, but there are options. Here’s how to get a loan with no credit history.
1. Use a credit builder loan
It works like this: The lender will let you borrow a small amount, but you won’t receive the money upfront. It will be deposited in a savings account, instead. You make on-time payments every month toward the loan, which has an impact on your credit score. The lender then reports your timely payments to credit bureaus, helping you build a positive credit history. When you’ve paid off the loan, you get access to the funds.
You can apply for a credit builder loan online through companies such as Self Lender, which offers loans with monthly payments that can be as low as $25.
2. Look for a credit union
Credit unions often are more willing to take on a risk by lending a small amount of money to people with no credit. In 2010, the National Credit Union Administration created the Payday Alternative Loan program, which is offered by federal credit unions. You can borrow between $200 and $1,000 for a term of one to six months.
Some private or state credit unions also have similar products. Search online to find a credit union near you.
However, you should know a few things about payday alternative loans.
First, a federal credit union often is able to give you the best terms on your loan. That’s because the Payday Alternative Loan program is regulated. Sign-up costs can go up to $20, and the federal credit union can charge you a maximum APR of 28% only.
Other credit unions can charge a maximum interest rate of 18% only, but their application fees might be higher, which could make the transaction financially impractical if you need to borrow a small amount.
Lastly, some credit unions might not report your successful loan payments to all three credit reporting agencies. Even if you pay back the loan on time, it might not help build your credit. This might not matter if you just want to know how to get a loan with no credit. But if you’re interested in building your credit history, too, ask your credit union if it reports your payments to all three credit bureaus.
3. Payday loans can be costly
If you need money now — say, to pay your rent or cover an essential or emergency expense — you might consider a payday loan. But approach those lenders with extreme caution.
You likely will get approved for a payday loan immediately, but this kind of borrowing can ignite a bad debt cycle. Since you’re considered a risky borrower due to your lack of credit history, payday lenders will charge a high interest rate to offset their risk.
Payday and pawn loan amounts typically are under $500, so it might not seem like a lot of money initially. But it all adds up: The fees can total to an equivalent of about 400% APR in many cases, making such loans one of the most expensive ways to borrow money. In addition, repaying the loan can be challenging, if not impossible.
Many payday lenders also don’t report your payments to the credit bureaus. So even if you pay back your loan on time, it won’t help build your credit, which would leave you right where you started.
Consider all other options before going to payday lenders, even if that means turning to friends or family for a small loan. Creating guidelines around the terms of your loan and repayment is a proactive tactic to use while borrowing money from people you know. Such a loan won’t help you build credit, but it could keep you from paying high interest rates and outrageous fees.
4. Build your credit first
Learning how to get a loan with no credit isn’t always simple. The smartest move, if you have the time? Build up your credit before you apply for a loan.
It’s not a quick fix, but if you build your credit before applying for a loan, you could find lower interest rates later.
You don’t have to take out a loan or open a credit card to build your credit, although the options are feasible. An alternative solution is to use a service to report your rent payments to a credit bureau.
With Rental Kharma, for instance, you can have your last two years of timely rent payments reported to TransUnion and have it count toward your credit score. It costs $25 to sign up and $6.95 per month for the service. According to the company, some of its clients report an average credit score increase of 30 to 50 points in two weeks.
How to get a loan with no credit
Unless you need emergency funds, it’s usually best to build your credit first before applying for personal loans. This could mean putting off your dreams for a few months, but it doesn’t mean you have to give up.
Building credit history is a process, and starting off on the right foot will make a big difference throughout the rest of your financial journey.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|