If you’re shopping for a loan and are worried about your credit score, income, or past loan rejections, you may find yourself wondering where you are most likely to be accepted for a loan.
Well, you’re not alone. There is a large market for loans which offer more relaxed approval criteria than traditional lenders. Just a quick internet search may pull up hundreds of results for companies advertising ‘97% approval’ or ‘everyone accepted’. But is this really the case?
In reality, there are no lenders who would blindly agree to lend to absolutely anyone- and companies which claim to do so are almost certainly relying on a caveat to mislead customers.
However, there are a large number of companies which do accept applications at a higher rate than normal by pre-approving applicants with a soft credit check.
No Credit Check or Soft Credit Check?
You may have seen lenders advertise ‘no credit check’ loans in an attempt to attract borrowers who have bad credit ratings or might otherwise struggle to get a loan through a traditional provider.
However, all regulated lenders in the UK must run a credit check before approving a loan. Lenders who do not do this are unregulated. This means they are not subject to rules set out by the Financial Conduct Authority (FCA) which ensure lenders treat customers fairly and behave responsibly.
Even though many short term lenders advertise ‘no credit check’ loans, this often isn’t strictly true. A number of these providers may actually be FCA-regulated, but the way they use credit checks is a slightly different way to the way traditional lenders use them.
It is perfectly legal to operate as an unregulated lender in the UK, but these companies may be more inclined to be reckless with their lending.
Lenders Are FCA-Regulated
So, does that mean that all those ‘no credit check’ lenders are unregulated? Not necessarily. Many of these lenders are actually FCA-regulated (you can check here who’s on the list), but advertise ‘no credit check’ loans to appeal to borrowers worried about credit checks.
Instead, these short-term loan companies run a ‘soft’ credit check before lending money. This is a less intrusive form of a background check than the hard credit check run by traditional lenders before agreeing to lend someone money.
Whereas a hard credit check reveals complete details about your accounts, debts and payment history, a soft credit check simply confirms your address and credit score.
‘No credit check’ companies and many short-term lenders have such a high acceptance rate because they are willing to approve loans based on the results of the soft credit check alone.
In order to comply with FCA regulations, these companies will complete a full credit check after the loan has been agreed to. In very rare circumstances, the loan may be rejected at this stage.
How Do High Acceptance Rate Loans Work?
Most high acceptance rate loans take on such a high proportion of lenders because they are willing to approve loans based on very limited information.
This could be as simple as an affordability assessment, based on an online form in which the applicant gives information about their income, and a soft credit check.
While this can be great news if you have a bad credit rating and are looking for a loan, this system does have its drawbacks.
Credit checks are vital in helping lenders make informed decisions about their investments. When a lender completes a hard, thorough credit check, they can be certain about the risk they are taking on as part of the investment.
When a lender only uses a soft credit check, they only see part of the picture. As a result, most lenders assume the worst about the part of the credit report they cannot see in order to err on the side of caution.
As a result, lenders of these easy-access loans may charge very high-interest rates to compensate for the potential risk they are taking on by not thoroughly checking whether they are making a good investment when they agree to a new loan.
It’s not all about the lenders either! Credit checks can stall applications for a good reason. They are designed to prevent borrowers from taking on debt which they cannot afford, which could cause them all kinds of financial problems if they don’t pay it back.
For this reason, you should carefully consider whether you can afford to borrow before jumping for joy at the prospect of a no-credit-check loan.
How Do You Apply?
If you decide to hedge your bets with a high-acceptance rate loan provider, you will be relieved to hear that the application process is normally very straight forwards.
Almost all of these lenders operate online and applying for a loan is as simple as filling out an online form. You will need to provide information about your income and expenditure as well as how much you would like to borrow.
Think carefully about how much you can afford to repay each month after factoring in the lender’s interest rate. By avoiding a hard credit check, you will need to conduct your own thorough assessment of what is realistically affordable based on your budget.
You’ll also need to provide documents to confirm your ids, such as copies of your passport or driving license, proof of address and bank details.
You will be given a draft of the loan contract, which you should read carefully. If you are willing to go ahead and are accepted, the money could be transferred to your account within as little as 20 minutes.
Repaying the Loan
The exact repayment agreement of your loan will be outlined in your contract. Many short term loans run for a length of between 1-6 months, but some may go for as long as 18 months, especially if you have borrowed a larger amount.
Normally, you make regular bi-weekly or monthly payments to the lender of a fixed amount, which goes towards paying off the money you borrowed plus any interest.
Occasionally a lender may require you to repay through ‘balloon payments’, which is where you make small instalments to pay off your interest over the course of the loan. At the end of the loan, you pay off the money you borrowed in one single instalment.
Again, depending on your lender, you may be required to set up a standing order or direct debit at the start of your contract.
If you later realise you can’t afford these, you can cancel them at any time. However, you will still owe the money to your lender and will likely face penalty charges if you don’t pay them on time.
For this reason, it is important to contact your lender as soon as you realise you might not be able to pay them. If you contact the lender in advance, it may be possible to negotiate or come to an agreement.
How Can Flexy Loans Help?
Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.
They have already helped thousands of people get loans already, and they can do the same for you.
Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you. All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.
To apply and see what loan is available to you, click on the below and answer the question