Before lockdown, card payments were already becoming the norm in high-street retailers and local shops alike. But the sudden closure of physical retailers and the need for stringent hygiene measures due to the pandemic has hastened the decline of cash payments. Not only are more consumers paying for things online than ever before, but card […]
Do no credit check payday loans really exist?
If you’ve been wondering whether no credit check loans exist, the answer to your question is yes – in theory. In practice, they should not be offered by lenders in the UK, and with good reason. It may even be against the law for a payday lender to offer you a loan without a credit check.
What is a credit check, and how does it work?
A credit check is when a company checks your credit file to establish whether you are a credit-worthy customer. It’s not just lenders who perform credit checks – lots of different companies do. For example, even mobile phone contract providers will run a credit check to ensure that you’ve got a history of making repayments on time.
When you apply for an emergency loan in the UK, your payday lender of choice should perform a credit check (sometimes referred to as a credit search) which will highlight if you’ve ever struggled to meet your financial obligations in the past.
What does a credit search reveal?
When you apply for a loan, you agree to the terms and conditions set out by the lender. These terms will typically include a paragraph which details that by applying for a payday loan, you agree to a credit search. When a lender checks your credit rating, they will gain information on:
• Any previously defaulted or missed payments on hire purchases, loans, credit cards or other forms of borrowing.
• Occasions when you have went overdrawn in your bank account.
• Any County Court Judgements (CCJs) which have been registered against you previously.
• Any occasions on which you have entered a formal insolvency arrangement, such as an Individual Voluntary Arrangement (IVA).
• Any occasions on which you have legally been declared bankrupt.
Payday loan direct lenders will take these criteria into account when assessing your suitability for a loan. If your credit rating is particularly poor, they may decide not to approve your application. If your credit rating is not exactly perfect, they may offer you a loan with slightly different terms to what you were expecting, such as a smaller amount of money or higher interest rate. This reflects the risk you pose to the lender in terms of making repayments on time and in full.
No credit check payday loan rules
Payday loans are quick emergency loans which can be deposited into your bank account within minutes. However, regardless of how quickly you need fast access to cash, you should never be tempted to try and speed the process up by choosing a lender who doesn’t first run a credit check on your file.
Emergency loan direct lenders and brokers who offer access to short-term finance must comply with the rules and regulations of the FCA (Financial Conduct Authority). The FCA has a large and complex rule book pertaining to short-term loans, and all lenders need to follow these rules to the letter. One of these rules stipulates that all lenders are required to carry out a credit check before agreeing to lend to an applicant.
While some direct lenders might advertise themselves as no credit check payday lenders, the blunt truth is that any UK-based company which claims to be able to provide a loan without a credit check is breaking the law.
Why credit checks matter
The FCA regulates the financial industry in the UK. It is primarily designed to protect the consumer. Requiring payday lenders to carry out credit checks is ultimately in the best interests of the consumer.
This is because a successful credit check is a reassurance that you have the capability to repay your loan on time. You should never take out finance of any type unless you are completely confident that you can pay it back on time.
When you undergo and pass a credit check, it means that your direct lender of choice has agreed that there is no significant risk of you defaulting on your payday loan, and that the lender trusts you to make your repayments in full.
The risks of taking out a no credit check payday loan
If you find an unscrupulous lender who is willing to let you borrow money without undertaking a credit check, it means that they haven’t considered whether you are in a position to repay the money you have borrowed. While payday loans are usually for small amounts (think anywhere between £100-400), a failure to repay these types of loan on time could land you in serious financial difficulty, also known as the debt spiral or debt trap.
Your debt won’t simply disappear, and the longer it remains outstanding, the greater the fees and charges you will face. As the interest accrues on your debt, you may find it increasingly difficult to make repayments, regardless of how hard you work or how many hours you put in to make up the shortfall.
A reputable lender will always perform a credit check to ensure that you are in a position to meet your financial obligations. In addition to checking your financial history, a responsible payday loan company will also ask you to provide information on your outgoings, such as rent, utility bills, loan repayments, food, transport and other essential costs.
If a reputable lender feels that you may struggle to make repayments based on your income versus outgoings, they will decline your application for a loan. While this may feel like an inconvenience, the reasons are to protect you from further falling into the debt spiral. After all – if you don’t have the means to repay a payday loan after a month, you may find yourself taking out a loan with an alternative lender just to make the repayments on your original loan. For many, this is how the decline into debt begins, and regulatory bodies like the FCA exist to prevent this from happening.
Do illegal lenders provide no credit check payday loans?
As we’ve previously mentioned, any UK-based payday lender which offers no credit check loans is breaking the FCA code of conduct. In addition to this, the fact that they are willing to break the law suggests that they may be operating without the authorisation of the FCA.
It is a criminal offence to operate any form of financial service in the UK without the correct authorisation in place. The FCA publicly publishes details of firms which it finds to be operating illegally, so that consumers can avoid using their services in the future. It also prosecutes those who offer illegal financial products.
While it’s possible that some lenders do offer no credit check payday loans, you should ask yourself whether you really want to get involved with a company which is essentially a criminal enterprise. If you find a company which claims to offer payday loans without a credit check, you might want to consider reporting them to the FCA.
Remember: if you accept a payday loan from an illegal lender, you will have zero legal protection if things go wrong. You’ll be unable to refer a complaint to the Financial Ombudsman Service – so stick with a reputable direct lender or use a credit broker who will search for great value payday loans on your behalf.
Alternatives to no credit check payday loans
If you’re struggling to find a payday lender to approve your request for a loan, it can be tempting to try and find an illegal lender who will offer you a no credit check payday loan. However, you could be putting yourself at risk by accepting these loans, which are against the law in the UK. Instead, you might want to consider one of the following alternatives:
1) Effective money management
If you’re consistently finding yourself short of cash at the end of the month, or if you regularly default on your financial obligations, it might be time to think about how to manage your finances more effectively. The first step is to consider how much money you make each month in total. Add up the money which goes into your bank account from your monthly wage/salary, second job, benefits, tax credits and/or other sources of income.
Next, you should make a list of all your outgoings. This includes rent, utility bills, loan repayments, monthly subscriptions and other financial obligations. If your outgoings are greater than what’s getting paid in, it might be time to make some small adjustments. For example, by skipping that high-street coffee in the morning or making your own lunch instead of choosing fast food or a supermarket meal deal, you could save in the region of £2,000 in a single year!
By reducing your monthly outgoings, you might find it easier to meet your financial obligations, and when you start regularly making repayments on time, you’ll find that your credit score increases to reflect your new-found financial responsibility. This will make it easier to access payday loans or emergency loans in the future if you need to.
2) Guarantor loans
If you’ve been declined for a payday loan after a lender has checked your credit file, you may still qualify for a guarantor loan. A guarantor loan involves a friend or relative agreeing to be your guarantor. In the event that you don’t repay the loan on time, your guarantor will ultimately become responsible for repaying it.
In a sense, guarantor loans are the true no credit check payday loans – they’re legal, and the lender won’t take your credit rating into account. They will, however, take the credit rating of your guarantor into account. Failure to repay the loan could also result in your guarantor’s credit score being adversely affected – so only resort to a guarantor loan if you’re 100% confident you can meet the repayments on time and in full.
3) Payday loans
Different financial service providers have different criteria on who they lend to, and how they lend. For example, traditional lenders like the high street banks might eschew all but those with perfect credit ratings.
As an alternative to mainstream financial service operators, payday lenders will consider your ability to repay in the future, instead of focusing on your financial history. However, they will still take your past into account when mitigating the level of risk that they face by approving your loan.
This means that a lender might offer you access to short-term credit at a higher interest rate than the high street banks. Some lenders might only be willing to let you borrow a small amount (up to £100) until you can prove your credit worthiness by making repayments on time. As you demonstrate your ability to repay, you’ll find that your payday lender may be open to allowing you to access larger lines of credit in the future.
You may also find that repaying short-term emergency payday loans on time will help build your credit rating, which will allow you to access a wide range of financial instruments in the future. However, it is important to only take out a loan if you are certain that you can make the repayments.
Why you should choose a broker instead of searching for no credit check payday loans
If you’ve applied for a payday loan via a direct lender and been declined, this could affect your credit rating – especially if you apply for payday loans via multiple direct lenders over a short period. Each of these lenders will be able to see how frequently you’ve applied for credit, and when you’ve been declined. If you’ve applied for lots of payday loans over a short time frame, this could paint a picture of you as desperate for access to cash.
This could affect your ability to secure a loan in the future. If you’ve been declined for a payday loan, it is recommended that you wait at least two weeks before applying with another lender.
Alternatively, you could allow a payday loan broker to do the hard work for you. Brokers only perform what is known as a “soft search” on your credit file. This will not be visible to lenders and will not affect your current credit score. However, please be aware that when you apply for a loan, your direct lender of choice will run a “hard” credit check, as per FCA rules.
Choosing a broker makes perfect sense – not only will you have a good idea of which lenders may be willing to accept your application, you’ll also be able to compare each direct lender to get the best possible deal. What not try our free service today to find out more?