You have to get credit to build credit, but many people wonder how they can start their credit journey. Some people turn to a cosigner to guarantee their first loan, but what if you don't have anyone that can cosign for you? You might wonder if you can get a personal loan with no credit and no cosigner, and the answer is yes. Find out more below.
Why Are No-Credit Loans Harder to Find?
Before you find and apply for a no-credit loan, it's a good idea to understand why they're harder to come by. Lenders use credit histories to determine whether or not someone is a good risk. The higher your credit score and more stable your credit history, the more likely you are to pay back what you borrowed on time.
But if you don't yet have a credit history — or your credit file is small — lenders don't have enough information to understand whether you're a risk or not. With bad credit, at least lenders can see the story in your credit history and why you might have fallen behind on bills. In effect, having no credit means you're a complete wild card to potential creditors.
The results are that:
- Creditors may be less likely to lend to you
- Your loan options may be reduced, especially when it comes to how much you can borrow
- You may face shorter terms if you do get a loan, as creditors will want to recoup their investment as fast as possible
- You might deal with higher interest rates than someone with good credit, because lenders are hedging their bets
What Are Some Personal Loan Options if You Don't Have Credit?
But being a wild card doesn't keep you out of the personal loan game altogether. First, make sure you know exactly what's involved in applying for a personal loan. Then, consider these three options that might let you borrow without a cosigner.
1. No Credit Check Loans
Not all lenders are concerned with your credit score. Some of them loan money based on other factors, like your income. You may be able to get a payday loan or a short-term personal loan. They work basically the same way.
- You provide the lender with proof of your income, often in the form of paycheck stubs.
- The lender offers you a small loan, typically ranging from $100 to $500.
- You agree to the lender's terms, which usually involves paying back the total amount borrowed plus a fee for the service within a few weeks or months.
- The lender takes the payment directly out of your checking or savings account in many cases. This reduces the risk that they won't get paid back and is one reason they don't worry about credit scores.
While you may be able to find lenders locally who won't require a credit check, you'll find even more options online. Make sure to conduct your due diligence to ensure the lender is reputable. Consult online reviews, read all the information on their website, and look them up with the Better Business Bureau. Another good tip is to ensure the lender has multiple contact options on their site; if you can't call or email them and they don't list a mailing address, consider it shady.
Pros: These loans don't require a credit check, and you usually only need proof of address and income, as well as a checking account, to be approved. The timely payment may be reported to the credit bureau, which can help build your credit.
Cons: The fees are usually equivalent to an extremely high APR, making this one of the most expensive forms of debt. Not all of these lenders report to the credit bureaus, so if credit building is your main goal, this may not be the most optimal option.
2. Your Bank or Credit Union
Financial institutions that know you are more likely to take a chance on you. If you've banked with a certain company for a year or more, you might ask about introductory personal loan options. Credit unions are especially likely to offer this type of loan. Some don't even check your credit.
Pros: Dealing with a reputable organization that's known to you can provide some peace of mind. While the loans won't have the lowest possible interest rates, they typically come with much lower APRs than payday loans. Banks and credit unions almost always report loans and payment histories to the credit bureaus.
Cons: Your chances are better if you already have a relationship with the bank or credit union. The loans will likely be limited to smaller amounts.
3. Credit-Building Loans
Credit-building loans are products that are offered specifically for people with no or bad credit. They're designed to help you build your credit without putting the lender at a lot of risk. Unfortunately, this means they're not always a viable loan option if you actually need extra funds immediately.
Credit-building loans usually work with a security deposit. You make a deposit, typically between $100 and $2,500. The deposit is held in trust in a savings account for you.
You're then given a "loan" for the same amount. You make regular payments on the loan for a period of several months or a few years. Those payments are reported to the credit bureaus, helping to build your credit history.
Once you make all your payments, the savings account is released to you. You do pay for this loan in interest or a fee, but it might be worth that expense to get some good history on your credit report.
Pros: These types of loans are typically accessible by anyone with a deposit and a checking account. The entire point of the loan is to build your credit, so you know the lender will report to credit bureaus.
Cons: You have to be able to fund the deposit up front, so this isn't a loan that would work for covering emergency needs.
Are There Other Lending Options for People Without Credit?
Personal loans aren't the only way to build your credit. If you can't find a personal loan that will work for you, you might consider a secured credit card.
Secured credit cards are designed for people with no, low, or bad credit. You put up a deposit when you apply for the card, typically around $200 to $250. The deposit is refundable, which means if you close your card after having managed it properly, you get your money back. You might also get your money back after demonstrating good card management for a certain amount of time and being reviewed by the card issuer for a transfer to an unsecured credit account.
Pros: It's easier to get a secured card than other types of cards. Some cards even offer perks such as cash back, and if you use them responsibly, that can put more money in your wallet. Credit card issuers almost always report to the credit bureaus.
Cons: The credit limits can be low, often starting around $200. The APR may not be extremely competitive, and you may have to pay an annual fee as a cardholder.
Getting a personal loan when you have no credit and don't want to rely on a cosigner isn't always easy, but it's definitely possible. And once you do land that first loan, you can make timely payments and manage it responsibility to start to build your credit so you don't have to keep dealing with this issue.