Credit check is a standard practice in the United Kingdom (UK). It’s carried out to see how responsible one can be as a borrower and tenant. Even employers are using them to assess job seekers. For example, research has shown that an applicant who’s under severe financial pressure and bad credit is prone to bribery and employee fraud.
The problem with credit checks is if one’s financial standing is shown bad, accessing funds will be challenging. Although borrowing with low credit scores isn’t impossible, it’ll often cause more, which may result in a debt spiral.
The same goes for startups. Since they just recently started their business, they lack a lot of factors that lenders normally look at. These include (but aren’t limited to) the lack of track record or history, collateral, good cash flow, and proven business model.
It’s no wonder desperate borrowers look for financing without checking their credit. The question is: are there no-credit-loans in the UK? Let’s figure it out here.
What Are No-Credit-Check Loans?
A “no-credit-check loan” doesn’t require a credit check and is designed to be accessible to individuals with a poor credit score or history. This type of loan is an excellent option for those unable to obtain funding from conventional lenders due to bad credit standing.
No-credit-check loans are very versatile. They can be used to fund any expenses, such as making large purchases, paying bills, covering unexpected expenses, consolidating debt, and even starting a business. They can also build or improve credit, giving borrowers access to better loan products and terms in the future.
Since there’s no credit check involved, the loan application process is quick and hassle-free, making it the ideal choice for those with an urgent need for funds. However, it’s important to note that they come with higher interest rates than most traditional loans. Hence, borrowers should carefully consider the costs of this type of loan before deciding.
While no soft or hard inquiries and collateral are normally required, qualifying for most unsecured no-credit-check loans can still be challenging. Thankfully, most lenders understand that borrowers who opt for these loans have poor credit ratings or no credit score. Instead, they evaluate their income or employment status.
Lenders have to review borrowers’ bank accounts as well. They’ll check the funds deposited in the account and other bank transactions, such as online banking payments and online transfer loans. They do so to assess borrowers’ ability to make payments and ensure their creditworthiness.
Examples of No-Credit-Check Loans
The first example is online loans. Several alternative financing options that can be processed online don’t run credit checks. They typically promise instant approval and fund disbursal despite not requiring any collateral.
However, be careful with online credit products. Remember that there’s no free lunch. More often than not, the prize for their fast approval is very high interest rates. Always read the terms and compare other options before taking one out. Even if it’s an emergency, take time to read and research to avoid falling further and further into debt.
The second example is credit union loans. Credit unions are typical member-owned financial cooperatives founded and run by members who share profits with owners. They offer traditional banking services to their members, including secured and unsecured credit products. To avail of their products, borrowers or their family members should be a part of their credit unions.
The last example is payday loans. As it implies, these are loans meant to be paid on borrowers’ next salary, so they’re typically short-term and currently the most common source of fast cash in the UK. Like online loans, their approvals are typically fast, even for those with limited access to mainstream credit.
Unfortunately, payday lenders in the UK are regulated by the country’s Financial Conduct Authority (FCA). This government agency requires all financial institutions that provide financing and other credit products or services in the UK to run credit checks on their borrowers. In other words, payday loans in the UK, unlike in other countries, require credit checks.
Are There No-Credit-Check Loans in the UK?
As mentioned, the FCA requires their regulated lenders to run a credit check on every single loan taken out in the UK. It doesn’t matter whether the loan is small or short-term or whether the borrower is a startup or a low or no-credit individual.
However, this doesn’t mean you can’t get no-credit-check loans in the UK. They exist, but the FCA doesn’t regulate them. While this sounds good, it poses more harm in many ways than benefits to borrowers. For example, they can be very high-interest loans or phishing.
Final Thoughts
Don’t immediately fret if your credit score isn’t up to par. Just because your credit rating is poor doesn’t necessarily mean that lenders will reject your application outright. There are alternative options available to you. It won’t be a walk in the park, but the rewards will be worth the effort.
