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Personal loans based on income and not a credit score can help borrowers with weak credentials obtain quick funding for a vacation, Christmas gifts, or for emergency cash.

Sometimes young adults need a starting point. Other times, people need forgiveness for past mistakes or unfortunate circumstances that caused a black mark on their consumer report.

Lenders can offer different types of income-based loans: unsecured contracts relying on your signature, installment agreements with close-ended terms, and payday cash advances.

Online companies that perform underwriting without a credit check may use soft inquiries and or alternative sources of financial data. Either way, expect to pay more in fees and interest – if approved.

Personal Loans Based on Income Only

Qualifying for a personal loan based on income only means having a realistic set of expectations. Without using a traditional credit check, the lender must see that you can easily afford the periodic payments.

Begin a personal loan online request here. Choose a principal amount and repayment term that is sustainable. Provide the subprime lender with complete information about your employment and current salary so that they can validate both. Be prepared with this information at your fingertips.

  • Confirm employment with employer name, address, and phone number
  • Show high-income relative to the monthly payment
  • Provide bank account and routing numbers
    • Confirms your identity
    • Allows for direct deposit
    • Ensures prompt payment

Income-Based Borrowers

Two types of consumers might be interested in taking out an income-based personal loan that does not use a traditional credit report or score. Keep in mind that borrowing costs are much higher when you ask the lender to ignore one of the most crucial underwriting tools.

  • Larger origination fees
  • Higher interest rates
  • Shorter repayment terms

Poor Credit

Poor credit personal loans based on income only appeal to people with adverse history appearing on their traditional consumer report from Equifax, Experian, or TransUnion. Adverse experience leads to a low FICO score, which makes it hard to find a willing lender.

Borrowers with poor credit must compensate for adverse history. The best way to make up for a low rating is to shine in other areas. Be prepared to include these items on your request.

No History

People with no credit history also seek out income-based personal loans. First-time borrowers have no traditional file for lenders to check. Pulling a copy of a consumer report is pointless if the bureau returns a no record found, and the credit score returns an unable to rate response code.

However, consumers with no history have an advantage. Nothing negative appears on their file. Therefore, creditors may be more lenient during underwriting. Expect the company to use outside resources to verify your identity.

Also, brand new borrowers need to provide the lender with information to validate employment and salary. The data may include the employer phone number, and past bank statements showing regular payroll deposits.

Income-Based Loan Types

Income-based personal loans without a traditional credit check come in several flavors with sometimes-interchangeable definitions. The type of contract the lender may offer depends on affordability. A consumer can afford to borrow money when they have a low debt-to-income ratio (DTI).

DTI = Monthly debt service payments/Monthly earnings after taxes

The only way to improve DTI is to minimize the monthly payment – unless you can quickly boost salary. Three levers affect how much you pay each period.

  1. Term length
  2. Principal amount
  3. Interest charges

Signature Loans

Signature loans with no credit check based underwriting decisions on income and affordability but not collateral. Signature loans are unsecured. You are not pledging a house, car, or boat as collateral for security against default. Therefore, the lender has nothing to repossess to recoup losses.

Signature loans rely on your promise to pay. However, this promise carries little weight without record showing a history of on-time payment backing it up. Therefore, expect higher costs, smaller amounts, shorter terms, and more denials – unless you have a rock-solid job.

Installment Loans

Income-based installment loans with no credit check feature a closed-ended contract. Close-ended means that you will have fixed periodic payments that retire the entire balance over a set period. For example, mortgages, car loans and leases, and personal loans are all installment contracts.

However, small installment loans with short repayment terms have become synonymous with the first option for subprime borrowers. People with poor qualifications must make two compromises.

  • Small principal amount minimize finance company losses
  • Short repayment terms lessen the uncertainty of time

Payday Loans

Payday loans based on income often do not involve a traditional credit check. A payday loan is an installment contract with one fixed payment connected to your employer’s payroll cycle (very short term). You retire the balance in full on the day that your paycheck deposits into your checking account.

However, if you fail to retire the full balance, you can roll over the cash advance – and incur a second origination fee. Many people roll over the balance too many times and rack up huge fees very quickly. Be wary.

The online payday lender will determine the amount you can borrow based on your income per pay period. For example, a person making $26,000 annually earns $1,000 for each bi-weekly payroll period. This person might be able to afford a $250 cash advance.

About Personal Loan No Credit Check Lenders

Borrowers should learn about what happens behind the scenes with no credit check lenders before taking the plunge on a personal loan. Basing an underwriting decision on income only is a poor business practice and therefore is very rare.

Instead, many online companies may perform a soft inquiry and or pull a consumer report from an alternative source. Learn how both concepts may apply to your situation.

Soft Inquiry

Soft inquiry personal loans do not involve a traditional credit check – at least not initially. A soft inquiry does not appear on the consumer report that lenders see, and it does not affect your FICO or Vantage score. Only the person views the entry when pulling his or her file.

How can a finance company use a soft inquiry when making an underwriting decision? It is impossible and illegal. Creditors must log a hard inquiry when viewing a file in connection with an application to borrow money.

However, every rule has exceptions, and you may encounter two scenarios.

  1. Lenders can “prequalify” prospective customers using limited application information and log a soft inquiry when they do. This process stops if the company delivers bad news about a likely denial because both parties decide not to move ahead. However, the company logs a hard inquiry when a person receives good news about a likely approval and chooses to complete a comprehensive evaluation.
  2. Online lead companies sometimes log soft inquiries legally after stripping off identifying information. The lead company sends your file to one of the big three bureaus (Equifax, Experian, or TransUnion) which in turn returns a record with financial data only (no personal information). The lead company then markets the depersonalized profile to lenders who bid on the opportunity to present offers.

Alternate Reports

No credit check personal loan lenders often use alternative sources of financial information. Instead of pulling a file from Equifax, Experian, or TransUnion, they use reports from other bureaus that often contain different types of information. Therefore, these lenders do use financial data in addition to basing underwriting on income.

No credit check lenders often consider non-traditional data from these alternative sources. Here are some of the elements they might use in making an underwriting decision in combination with income.

  • Apartment rental records
  • Utility bill behavior (gas, electric, cable, telephone bills, etc.)
  • Public record criminal files
  • College transcripts and GPA
  • Motor vehicle driving records and points

The non-traditional bureau logs a hard inquiry on its file when the online finance company uses the service. However, the hard inquiry does not appear on an Experian, Equifax, or TransUnion report and does not affect your traditional FICO score. Most people are unaware of this process because they only know about the big-three providers – not these other providers.

  • Innovis provides innovative consumer data solutions for businesses
  • SageStream, LLC provides consumer reports and scores regulated by the FCRA
  • LexisNexis offers solutions to mitigate risks and support intelligent decisions
  • Microbuilt/PRBC provides a score using predictive alternative credit data