After you have spent some time working on your credit and finally see some improvement, the last thing you want is to mess it up again. Sadly, your much better credit score will not prevent an unexpected expense from popping up. Suddenly, you need money that you do not have. Now you need to find a loan but you do not want it to undo all of your hard work. Is it possible to get a personal loan without hurting your credit?
In truth, a personal loan can only do one of three things: improve your credit, hurt your credit, or not touch it at all. If you get a loan and make your payments on time, it will improve your credit score. If you do not pay on time, it will hurt your credit. However, there are some loan companies that will not check your credit or report your payment history. If you want to get a personal loan without hurting your credit, this information can help.
Get a Loan With No Credit Check
There are, indeed, loan companies that do not even check your credit to approve you, but most require collateral or charge high-interest rates- or both. For instance, neither title loan companies nor payday loan companies always check your credit, but both may require collateral and can charge high-interest rates. While you can get a loan without a credit check, you need to carefully consider the consequences that go with it. The following are some loan types that do not require credit checks.
Personal Loan from Family or Friends
Some people have loved ones that can help them out when they need it. If you do, this might be the best option for you since it might be the simplest one and it will not affect your credit. However, money can tear relationships apart, so if you do borrow from a loved one, pay them back as soon as possible.
Credit Card Cash Advance
Most credit cards offer the ability to get a cash advance from your available credit. As the credit is already available to you, there is no need for a credit check. The trade-off is that there are usually fees for the withdrawal as well as high-interest rates. Before you go with this option, find out how much a cash advance from your card will cost you.
Payday loans are extremely easy to attain. Pretty much anyone with a regular income and an active checking account can get approved. Since the borrower is putting up collateral, there might be no credit check is required. However, they come with high interest rates so if you cannot pay the full loan and interest on your loan, this is not a good option.
Title loans are similar to payday loans. They require collateral instead of checking your credit. If you have a regular income and a vehicle that has enough value, you can usually get approved. Also similar to payday loans is that title loans have high-interest rates- really high-interest rates. If you choose a title loan and you cannot pay it off that first payment, you are in for an expensive cycle.
Some Unsecured Personal Loans Online
You can also shop personal loans online, but if you get a hard inquiry it can affect your credit. By using the correct search terms, i.e. “no credit check”, you will likely find a list of lenders that you can apply with. Some people find it much easier to get a personal loan online than in person.
Other Secured Loans
A secured loan is simply a loan that is connected to collateral, making both title loans and payday loans fit this category. Fortunately, there are some other secured loans available that are a bit less drastic. For instance, your bank or credit union might approve a loan using your savings account as collateral. Some banks will also use your car title as collateral, but the interest rates are generally much lower than with a title loan company.
Bank Statement Loans
One of my new favorite topics is bank statement loans. For years, freelancers, self- employed people, or others with unconventional and irregular income, such as tips, have been pretty much out of luck when it comes to getting a loan with a decent interest rate. In fact, we have been stuck going for title loans- at least I have. Most lenders do not want to approve a loan for someone that does not have a steady income.
Then, a wise person noticed this market gap and jumped on it. Someone realized that just because a person does not have an hourly rate of pay, it does not mean that person cannot afford a loan. And so bank statement loans were born. A bank statement loan is a pretty simple concept. Instead of checking credit and asking for check stubs, the lender will ask for 12 – 24 months worth of bank statements. Your ability to repay the loan is based on deposits and any other bank activity they factor in.
Most often, this term is used for mortgages but that is not the only type of bank statement loan available. Freelancers, the self- employed, servers, and contractors finally have a fair shot. And these loans are a perfect choice for someone with bad credit.
A Previous Lender
If you have borrowed from a lending institution in the recent past, there is a chance that you could get another loan based on your repayment of the first one. This may not always be the case, though. A quick phone call to that lender can tell you whether or not they would run your credit again.
Where to Get a Loan?
When it comes to getting a personal loan, you have many options. As mentioned above, your bank or credit union is always a possibility. Remember though to always compare their interest rates to others. It is not necessary to pay really high interest just because you bank with them. Also, most cities have at least a few lending institutions around. You can call them or drive around and speak to them in person.
In my humble opinion, the easiest way to find a personal loan without hurting your credit is by finding an installment loan online. It is much easier to locate lenders that match specific criteria, i.e. “no credit check”, online. You can also start the application with multiple lenders at once, decreasing the amount of work you have to do. Using a platform like Loanry is helpful to find a trustworthy lender that might match your needs. As an added benefit to online loan shopping- and a favorite of mine- you can apply from your couch in your pajamas with bedhead and no one will ever know.
The Next Step
If you cannot find any credit check loan, you might try looking for one that can approve you based on a soft inquiry. Each company that runs your credit either makes a soft inquiry or a hard inquiry. Do you know those pre-approvals for loans and credit cards that show up in your mailbox? You are pre-approved based on a soft inquiry. It is basically a surface credit check. These do not count against you because no one needs permission to run them. Otherwise, you probably would not have any of those pre-approvals.
A hard inquiry is quite different. At some point, you have likely signed a document for a job, a loan, or something else that asked for your permission to run a credit check and background check. These are for that company to do a hard inquiry, which is a hit to your credit. This is when they dive deep and dig up all the juicy details of who you owe, how much you have owed it, and for how long.
Do understand, though, that this type of hit on your credit is nowhere near as bad as an unpaid account, and it will not stay on your report as long. It might bring your score down a few points but it probably will not be a big enough impact to alter an approval decision. It merely states that someone has looked into your credit lately. And if that hard inquiry can get you a loan with a low interest rate and great terms, it is worth the temporary hit on your credit.
You will likely find that most unsecured loans will run a hard inquiry, but a few might approve you based on the results of a soft inquiry. By asking questions and reading the fine print before applying, you should have no trouble distinguishing between those that perform hard inquiries and those that do not.
Which Way Should I Go?
The direction you take should depend on the answer to the following question: What is your purpose for the loan? Do you need the loan to pay for something, or is it just for building or fixing your credit? All loans are not created equally, so treating them equally can be a costly mistake. Some loans are better suited for credit building than others, and some are better suited for bill paying.
Being clear on your purpose will help you choose your path. For instance, if your purpose is to build your credit, a loan from family or a friend is not going to help- unless, of course, they own a financial institution that reports to the credit bureaus. Otherwise, you are out of luck. Additionally, most payday loan and title loan companies do not report to the credit bureaus- unless you do not pay them. In order to discourage opting not to pay, they will report non-payment. So title loans and payday loans are not a tool for building credit, but they can destroy it if you are not careful.
At the same time, if you need money for a bill, a secured loan is probably going to be counterproductive, especially if you need to put up the same amount of collateral as the loan you are receiving. So, again, the purpose of the loan should guide you through the decision process.
Commit to Repaying Your Loan
Finally, there is one very important step to getting a personal loan without hurting your credit. Are you ready for some outstanding advice? If you really do not want a loan to hurt your credit, here is what you need to do: pay it back on time. That’s it, you just need to do what you agreed to when you got the loan. If you repay it on time it can do no damage because you held up your end of the agreement. And as backwards as it may sound, the first step in repaying a loan is only borrowing what you can afford to repay. Otherwise, you are asking for trouble.
While making every single payment on time should be the goal, it is not a perfect world, so you need a plan. The saying, “When you fail to plan, you plan to fail,” is extraordinarily accurate in the world of finance. Without a plan, you will likely end up in an uncomfortable amount of debt, and that is not somewhere you want to be.
I have heard people say that planning is a waste of time because plans always change. As a homeschooling mother of four from kindergarten to high school, I am well- versed in how quickly and easily plans can change. I actually cannot think of a single school day in the last twelve years that something did not change. Yet if I try to start our day without a plan, I am lost before I start.
Keep in Mind That Plans Will Change
They are fluid, not concrete, and that is okay. You do not need them set in stone- you simply need a map to guide you in the right direction. In the case of repaying the loan, making a plan is really simple. You need only to know when payments are due, how much is due for each payment, where exactly the money will come from to pay that payment, and how you will make the payment, i.e. automatic debit or cash in person.
Once you have your basic information, repaying your debt comes down to committing to the plan. Write the date in your planner or add it to your Google calendar so you will be reminded every month. If you need to, have a friend or family member ask you every month if you have made your payment yet to keep you accountable.
Also, acknowledge the fact that we humans have a “reward center” in our brains. If you attach a task you do not love to a reward, you are much more likely to complete the task. Give yourself a small reward after each payment, or a large reward once you have paid it off. It can be as simple as taking a bubble bath or as elaborate as an island vacation. Choose a reward that: 1. You can afford without taking out another loan, and 2. That will actually motivate you. The actual reward you choose is completely up to you.
If the worst occurs and you absolutely cannot make a payment, face the situation head on. Call your lender and explain your situation. Unless you are late for many payments, they will likely work with you instead of immediately reporting a missed payment. They really get nothing out of reporting you. They would much rather get their money back, even if it takes a little longer than planned. Speak to them as soon as you know you cannot make the payment. The earlier you explain, the better.
Your credit can affect your entire life. It can dictate where you live, where you work, what you drive, and more. If you find it necessary to get a loan, or you just want to build your credit, you need to be careful with it. The goal is to get a personal loan without hurting your credit. If you know that you cannot repay it, do not risk it if it can be avoided. If it cannot be avoided, do everything you can to pay every payment on time. This may require working overtime or getting a second job, but it is worth it to protect your credit. Be vigilant in your choices and diligent in your planning so that this experience can improve your credit instead of hurting it.
Brandy Woodfolk is an educator, home business owner, project manager, and lifelong learner. After a less than stellar financial upbringing, Brandy dedicated her schooling and independent studies to financial literacy. She quickly became the go-to among family, friends, and acquaintances for everything finance. Her inner circle loves to joke that she is an expert at “budgeting to the penny”. Brandy dedicates a large portion of her time to teaching parents how to succeed financially without sacrificing time with their little ones. She also teaches classes to homeschooled teenagers about finances and other life skills they need to succeed as adults.
Brandy writes about smart money management and wealth building in simple and relatable ways so all who wish to can understand the world of finance.