How can people with no credit history or score get a personal loan?
Young adults must begin somewhere. Someone must be approving first-time borrowers. Otherwise, nobody would ever be able to establish a consumer report or score.
The secret to getting a personal loan approval with no credit history is simple. Work with specialty online lenders and shine in other areas in order to balance out the equation!
Tip the scales in your favor by following these guidelines.
- Qualify for unsecured contracts by verifying your identity and income sources
- Make your profile less risky to lenders by offering three forms of collateral
Getting Unsecured Loans with No Credit History
Getting an unsecured personal loan is possible for people with no credit history or score. Unsecured means the bank has no recourse to repossess and then sell a pledged asset in the event of default.
Start a small personal loan request here. Young people without a record of borrowing money and paying it back are often great customers. They just have not had the chance to prove it!
- Establish a good credit rating without a credit card
- Lenders will report your behavior to all three agencies
- See your first score after six months of payments of on-time payments
How to Qualify
The best way to qualify for an unsecured personal loan with an insufficient credit history is to provide the lender with all the information they need to approve your request. Prepare all the documentation in advance.
Lenders must base their decision on income and affordability when you have no history. Therefore, performing well on these additional factors can boost your initial eligibility.
- Begin with a small principal amount
- Demonstrate a solid work history and sufficient income
- Time employed
- Employer name
- Employer phone number
- Verify your identity
- Driver’s license number
- Social security number
- Input your bank routing number and account number
- 3rd level of identity verification
- Consent to auto withdrawals
Online lenders help people with no credit history to get a personal loan. A single web-based form submission places your profile in front of a large network of specialty finance companies that use alternative underwriting tools.
Online loans that you pay back monthly are most affordable and help establish a positive record.
- A large network of online no credit check lenders takes the hassle out of the equation. Volume increases the chance of finding a match and makes the process easier. You complete one simple three-part web-based form.
- Alternative underwriting tools allow online lenders to approve reliable individuals without a traditional consumer report. Instead of the old-school attribution data, they may consider other cutting-edge information instead.
- 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
Without a Cosigner
Getting a personal loan with no credit history and no cosigner means compensating for the lack of a reputable guarantor. Cosigners often have an established record of borrowing money plus a reliable income. They agree to make payments if you cannot, which reduces default risk.
People with a limited credit history and no cosigner should expect to pay higher interest rates and show sufficient earnings to support the projected monthly installment.
- The monthly payment divided by monthly income is an important qualifier. Without a second salary from a cosigner, the debt-to-income ratio (DTI) suffers. You have three ways to improve (lower) DTI.
- Personal loan interest rates vary by credit score. Without a cosigner with a good rating, the bank will charge a higher APR to offset the higher expected default rate. This increases the monthly installment.
Getting First-Time Secured Personal Loans
Getting first-time secured personal loans is slightly easier for people with no credit history or score. Secured means the bank can take possession of the pledged asset to offset default losses. They are less risky. Therefore, finance companies are more likely to approve an application.
Young adults must start somewhere. Secured contracts offer the best shot for an 18-year-old to getting an approval and establishing a record of on-time payment and building a good score.
Consider the pros and cons of payday, auto, and government student loans.
First-time payday loans are an option for people with no credit history. With this option, the very short repayment timeframe and the security of an auto draft make up for the lack of borrowing credentials.
- Short repayment timeframes are less risky. You must repay payday cash advance in one or two weeks. The timing coincides with your employer’s payroll cycle.
- The collateral of your next paycheck also reduces risk. The payday company obtains the right to debit your checking account automatically just after your employer cuts payroll.
However, this does not mean that payday loans are a good option for all first-timers.
- Fees add up very quickly if you cannot repay the obligation in full. Those who rollover payday loans often pay sky-high annual interest rates. Use with caution.
- Many finance companies do not report positive activity to the consumer bureaus. They only report the negative. Therefore, this is not a good starter option to establish a record of on-time payment.
First-time auto loans are another option for people with insufficient credit history. With this option, you pledge the car you are currently or will be driving as security to counterbalance the lack of borrowing credentials.
Finance companies face less risk when they can repossess an automobile in the event of default. Since they hold the title, they can take possession and sell the vehicle at auction to recoup any losses.
Beginners can use a car as collateral to improve approval odds in two ways.
- Buy a new or used car via dealer finance programs
- Take out a personal loan against the title on an existing automobile
Making a large down payment also improves qualifications on new and used car purchases.
18 Year Olds
The U.S. federal government routinely approves first-time loans for 18-year-olds with no credit history, no cosigner, and no job or income. With this option, taxpayer dollars act as the security in the event of default – which happens to an alarming degree after graduation.
The federal student loan program funds first-time 18-year-old applicants. Simply complete the Free Application for Federal Student Aid (FAFSA) form in your senior year of High School. Young adults enjoy guaranteed acceptance if they are pursuing a qualifying degree or certificate program at least half-time.
No Credit History
18-year-olds with little credit history can borrow up to a fixed amount for the first year of undergraduate studies. The FAFSA form does not require or involve pulling a file or score from a consumer-reporting agency.
No Income or Employment
18-year-olds with no job or income also automatically qualify for these federal loans. Even young adults pursuing low demand majors with poor earning potential meet the standard. Of course, the reverse is also true. If a for-profit technical school over promises a high-paying career, expect the government to shut them down.
18-year-olds with no cosigner or parental support qualify for the largest loan amount. Parents do not have to act as guarantors as they would with private banks. The government logic works in reverse. The limit grows when you do not receive financial support from a parent.
- Dependents – parents provide financial support
- Independents – no parental financial support
Remember this the next time you vote. Only elected officials spending other people’s money would lend such large sums to inexperienced young adults under these parameters. Is it any wonder why this area is such a financial mess?