While it is possible to gain provisional approval for a short-term loan with no credit check, at some point a regulated lender will at least carry out a soft credit search. However, before this soft credit search, they may already have approved a relatively small short-term loan.
Under FCA regulations, all regulated lenders in the UK need to carry out a credit check on all loan applicants.
However, it is possible to carry out what is known as a “soft credit search” which is useful with pre-approved loan applications.
However, you need to be very cautious of companies which advertise no credit check short-term loans.
Keep reading for the nitty-gritty details.
Criteria for Short-Term Loans
It is fair to assume in the vast majority of cases that those applying for a no credit check short-term loan have experienced financial difficulties in the recent past.
The relatively high-interest rate on short-term loans is a reflection of the underlying risk associated with borrowers.
The criteria used when considering short-term loans where there is a chequered credit history is as follows:-
- Applicant must be over 18 years of age
- They must hold a UK bank account
- Evidence of monthly income
- Employers details made available
- Confirmation of UK residency
These are the basic criteria upon which short-term loan “no credit check” applications will be considered.
The most common form of short-term loan for this scenario is a payday loan with the average loan no more than £100 and repaid within 30 days.
Do Lenders Need to Carry Out a Credit Check?
As we touched on above, a credit check must be carried out by a lender for every loan application. The fact that payday loan companies are more focused on relatively small short-term loans means that bad credit history is probably already expected.
As a consequence, while a lender is obliged to carry out a credit check, in some cases this is for administration purposes only. As detailed above, if you have evidence of your monthly income and details of your employer, then this does reduce the risk to the lender.
Are Payday Loan Companies Regulated?
There is a general misunderstanding that payday loan companies are not regulated and therefore, exempt from traditional lending regulations. While it is true to say they do operate at the more “risky” end of the market, they are still regulated by the Financial Conduct Authority.
We saw some major changes back in 2014, which improved the regulatory structure for the sector as well as consumer protection.
As of 2014:-
- The daily interest and fees were capped at 0.8% of the original loan
- Default fees are capped at £15
- Total interest and fees are capped at no more than the original loan
Before 2014 there were serious concerns about the way in which the industry was being managed, in particular sky-high interest rates and dubious debt collection procedures.
There has been a major shakeup since the new regulations were introduced and while the focus is still on the so-called “risky” end of the market, the regulatory structure and consumer protection is unrecognisable from years gone by.
What Interest Rate Should I Expect to Pay?
What you should expect to pay a higher than average interest rate compared to personal loans, overdrafts and credit card accounts. The exact level of interest charged on a payday loan, for example, will vary according to status.
In some cases, the annual interest rate will be double digits while in more extreme cases where the applicant has experienced significant financial problems, you could see rates of 1500% and even higher. As we are talking about so-called “no credit check” loans in this article, we can assume that the interest rate on such a loan would be towards the very top end of the range.
There are potentially ways and means of mitigating these high-interest rates, such as using credit brokers. They will have access to a range of short-term lenders more used to dealing with applicants who have bad credit ratings.
It will obviously depend upon the amount of money being borrowed but even a relatively modest shaving of the headline interest rate can make a big difference to loan repayments.
Who Can Access My Credit File?
When you apply for a loan, lenders will access your credit file to get an idea of your financial background and financial status. While those who are looking for short-term loans with no credit checks often have bad credit ratings, this is not the end of the world.
Your credit history will show your payment history, as well as your debts and overall financial situation.
When lenders check your credit file they will be looking for what is known as the five C’s:-
- Credit history
It is worth noting that the information on your credit file will go back six years so even if your financial situation has improved recently, loan applications may still be impacted by financial problems from up to 6 years ago.
What Is the Maximum Loan Term Available?
Under the current regulations, short-term lenders, such as those offering payday loans, are able to offer terms up to 12 months. Many people automatically assume that short-term loan companies, often specialising in applicants with troubled credit histories, measure loan terms in days/weeks rather than months.
Whether a client looking for a no credit check loan would have access to a long-term loan is debatable because of the perceived risk.
However, if there was evidence of income and the long-term loan repayments were affordable, there may be potential to agree to a deal.
Under FCA regulations, all regulated lenders are obliged to carry out a credit check for all loan applications. They may carry out what are known as “soft checks” for pre-approval, but legally they have to carry out some form of check.
Clients looking for this type of finance will often have a chequered financial history which the lender would fully expect. So, in theory, carrying out a credit check may not necessarily greatly impact the loan approval process.
If there is evidence of income and repayments are affordable, there is every chance of finding a lender to work with.
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