Payday Loans No Credit Check?
So is it still possible to get a payday loan without a credit check? It’s not a simple question to answer but we’ll have a go filling in the details. In short the summary is it’s increasingly hard to get a payday or short term loan with no credit check. That traces back to the FCA regulations introduced in 2014.
Payday Loan Direct Lenders are particularly unlikely to lend without a credit check but you might have some luck with smaller lenders.
What is a credit check?
A credit check is a very important part of the loan application process, especially short term loans online. A direct lender needs to know how much you can afford and if you are in any financial trouble. The easiest way to do this is to perform a payday loan credit check. Like all credit checks this provides the lender with a summary of your current and past debts.
There are different levels of detail depending on how thorough the lender wants to be. They might just want to confirm you are who you say you are with a summary of your current accounts. For short term loan lenders, they will want a more detailed report on you. This detailed report might look at your borrowing history including every on time or missed payment. This info could go back years but it’s essential in proving you’re worth the risk.
Why do Lenders Credit Check?
Lenders perform a credit check as they want to be sure you can afford to pay back the loan with interest. The interest is how the lenders make their money so even one missed payment makes it not worth lending. It’s very important to a direct lender to collect all of the scheduled payments or they’d go out of business.
It can look like short term loan lenders have ridiculous interest rates, in reality, that’s what it costs to lend to people with bad credit. There’s actually not that much profit in a loan at 1265% Representative APR! How can that be you ask? Because that number bears no relation to what you’ll actually end up paying the lender.
When you take out a short term loan online or do a payday loan online application, the lender will first see if you’re a good fit for them. If they think you match their normal customer, they’ll do a credit check. This credit check costs them money so even if you don’t take out the loan, they already have costs. Once they review the credit score, probably an automated process that also has a charge from the software company, they decide whether to lend.
From that point on, there are loads of little expenses the lender has to pay. Setting up a payment schedule, sending you documents to sign and transferring the money to you all have fees associated with them. Then every time they collect the repayments they get charged a percentage, a failed payment still costs money too. All of this adds up over the life of a loan.
A £100 short term loan over 4 months can easily have charges approaching £40. The total interest on a 4 month loan would be £67 so the lender is down to £27 profit. All it takes is one missed payment and they’ve made a loss.
That’s why it’s so important for lenders to perform a credit check when you apply for a payday loan no credit check would be like gambling.
Can I get a loan with no credit check then?
Probably not is the answer. From a reputable online lender, they want to be sure you can afford the loan. That’s in your interest too, they don’t want you to borrow so much you can’t repay. Direct lenders of short term loans don’t want you to repay late, the charges and fees are not part of the business model any more. Years ago, lenders like Wonga used to make all of their money on the fees so they took everyone. They didn’t care too much whether you could repay or not as they could keep charging you more and more in fees. Often, you’d end up owing ten times what you borrowed which was profitable for them.
With the total cap of twice what you borrowed and the fact that there are loads of charges for the lender to cover, it’s no longer profitable for you to not repay. Lenders want that peace of mind in knowing you can afford the loan.
What can I do if I have bad credit?
It’s not the end of the world. Short term loans are usually designed for people with less than perfect credit scores. What the lenders are looking for is your willingness to repay. If you have been making your repayments recently, they might ignore an issue you had two years ago. That issue might have been a late repayment or even a default which means the banks won’t lend to you. Payday Loan Direct Lenders understand that we’re human, as long as you are committed to borrowing sensibly and only what you can afford, they will probably lend.
If you credit score is really bad, for example a high number of missed payments in the last 3 months, they probably won’t lend. That’s a good thing. If you can’t possibly repay the loan, no-one wins, the lender won’t lend to you again as they’ll lose money. Your credit score will get even worse and the loan may not get you out of the current financial emergency.
In situations like this, it might be best to get in touch with the money advice service or even citizens advice. There are loads for free services that can guide you to controlling your debt. By being careful with your income and focusing on paying off old debts, you can get clear of the cycle of borrowing and improve your credit score too.
Here at LoanPig, we and all of our lenders always perform a credit check, we want to be sure we don’t get you into financial trouble!