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Sometimes you need money to cover an unexpected expense (like a big medical bill) or to prevent a small issue from causing larger ones (needed car repairs). If it absolutely can't wait, a small loan could be the answer to your financial prayers—but can you get one if you don't have a credit history?
It's possible to get a small loan without having a credit history, but you may be hit with higher-than-normal interest rates and unfavorable loan terms. Here's what you need to know to get a small loan even if you have no credit.
Why Don't I Have a Credit Score?
Not having a credit score doesn't necessarily mean you have bad credit. It simply means the credit bureaus don't have enough information about your credit history for a credit score to be assigned. Perhaps you don't have any credit accounts, or you only have one or two and are deemed to have a thin credit file. Common reasons you might not have a credit score include:
- You've never used traditional credit accounts. Credit reports keep track of your interactions with credit and debt. If you've never taken out any type of loan and have never had a credit card, you won't have a credit history that scoring models can assess.
- You haven't used credit within the past 24 months. Credit bureaus need to see activity on your credit accounts to generate a score. Ensure your accounts remain active by using each of your credit cards occasionally and paying the bill on time.
- You're a recent immigrant. You may have had an excellent credit score in your home country—but unfortunately, that score won't transfer to the United States. You'll need to start from scratch when building your credit history as a recent immigrant.
Can I Get a Small Loan if I Don't Have Credit?
Most small loans are personal loans. As of Q3 2021, the average personal loan balance was $17,064, according to Experian data. You can generally get personal loans for as little as $1,000.
While auto loans and mortgage loans are designed for specific purchases, a personal loan can be used for just about anything you want. Unlike a car loan or mortgage loan, which uses the car or house itself as collateral, personal loans are usually unsecured, meaning you don't have to put up any collateral. This makes your credit score even more important.
Although you may be able to get a personal loan with no credit, lenders will probably charge you higher interest rates than they would if your credit was good. How can you prove that you're creditworthy without having a credit score? Look for lenders that consider other factors not included in your credit report, such as your employment history, income (from pay stubs or tax returns), bank account balances and debt-to-income ratio.
It's often easier to get a personal loan from a credit union than from a bank. Because educating and supporting members in managing their finances is part of a credit union's mission, credit unions tend to be more flexible about their loan criteria. To apply for a credit union loan, you need to join the credit union, generally by opening an account and making a deposit.
Types of Loans to Consider
- Online loans can be a good option for borrowers without credit. These lenders have no physical locations you can visit and operate entirely online. Lower overhead allows them to offer lower interest rates than banks. Online lenders often specialize in particular types of loans, such as personal loans, and have less stringent criteria for making a loan than banks. The application process typically takes just minutes; if approved, you can sometimes get your money as fast as the same day.
- Peer-to-peer (P2P) loans are available from a subset of online lenders called peer-to-peer lending platforms. These sites match potential borrowers with individual investors who want to make loans. Prosper, LendingClub and Peerform are popular P2P lending sites.
Types of Loans to Avoid
Two other types of small loans—payday loans and title loans—are easy to get with no credit, but both should be avoided. Many states restrict or forbid these loans.
- Payday loans: Payday loans are available online or at physical payday loan stores. Since there's usually no credit check, these loans can sound alluring to those who don't have a credit history and need cash quickly. However, payday loans charge high fees equivalent to annual percentage rates (APRs) in the range of 400% and up and must be repaid in full quickly—usually within two weeks. If you can't pay the loan at that time, you might be allowed to roll it over; however, this means you'll end up paying even more.
- Title loans: If you own your car outright, you may be able to use it as collateral on a title loan. Title loans are often available without a credit check. You can keep using your car while you have the loan, but the lender can take possession of it if you fail to make payments. Because most title loans must be repaid in 15 to 30 days, you could lose your car in short order. You'll also pay extremely high interest rates (not to mention loan fees), making this a very costly way to get emergency cash.
Where to Apply for Small Personal Loans
You can apply for small personal loans at banks, credit unions or online. Begin by investigating which lenders offer personal loans with small minimum amounts. You may want to start with your current bank or a credit union you belong to. Experian's CreditMatch™ tool can help you find prospective sources of personal loans.
Once you narrow down your options, it's time to apply. You may have to make a call or pay the lender an in-person visit at some point in the process, but most lenders let you at least start the application process online and get prequalified for a loan that way. Prequalification provides you with estimated loan amounts, costs and terms you can use to compare lenders and doesn't affect your credit score. Some lenders don't require a credit check or they'll use alternative data to help them determine your loan eligibility. Once you find a lender you like, you can move ahead with the application process.
You'll need to provide personal data (name, address, birthdate and Social Security number) to apply for a loan. You may also have to submit tax returns, pay stubs, bank account numbers and other personal financial information to help a lender understand your income and existing debt obligations. Different lenders also might consider additional factors; including your standardized test scores, which college you attend/attended, your major and your grade point average.
When comparing personal loans, look at the following factors:
- Interest rate: Lenders express interest rates as an APR that includes interest, fees and other costs. Most lenders provide a range for their current loan APRs; just keep in mind that with no credit, you're likely to be charged at the higher end of that range.
- Loan terms: Personal loans are short-term loans and generally must be repaid within 12 to 60 months.
- Fees and other charges: Find out if origination fees and other costs will be taken out of your loan proceeds and if there is a prepayment penalty for paying the loan back early.
You can use Experian's Personal Loan Calculator to compare different loan terms and costs, calculate your monthly payment and decide which loan is best for you.
How to Establish Credit if You Have No Credit History
Even if you are able to secure a small loan with no credit, it's extremely important to establish and build a credit history. Down the road, you'll likely want to apply for more credit to accomplish other life goals, such as buying a car or a house. Having a credit history will make it easier to get approved for these loans. Try these tips to establish credit for the first time.
- Apply for a secured credit card. A secured credit card is "secured" by a refundable security deposit. You can make charges up to the amount of your deposit (minus any fees). Secured credit cards are designed to help people establish or improve their credit. Because the credit card issuer can tap into your deposit if you can't pay your balance, they will feel confident extending credit even if you don't have a credit history. Before applying for a secured credit card, make sure it will report your payments to the national credit bureaus. Build your credit by using the card sparingly each month, paying your bill on time and making sure your credit utilization doesn't climb too high (aim to keep it below 30%, but lower is better).
- Become an authorized user. Another option is to get added to a family member's credit card account as an authorized user. The account holder is ultimately responsible for the charges, but by using the credit card for small purchases and paying it off each month, you can improve your credit score. For best results, make sure the primary cardholder always makes on-time payments, has had the account open for a long time and doesn't carry a high balance.
- Monitor your credit score and report. To see if your credit-building efforts are working, get a free credit report and watch as your on-time payments start to flesh out your file. It takes about six months for your FICO® Score☉ to be calculated; at that point, check your credit score to see where it stands.
Alternatives to Small Loans When You Don't Have Credit
If you don't have a credit history, applying for a personal loan isn't your only option. Here are some other alternatives for getting the money you need.
- See if someone will cosign on a loan with you. Persuading a friend or family member to cosign on a loan could be the answer to your problem. The cosigner promises to pay the loan back if you fail to do so. You'll need a cosigner with a good credit score to make up for your lack of credit. Just be sure you pay the loan back, or you risk damaging credit scores for both you and your cosigner (as well as your relationship with them).
- Consider borrowing money from friends or family members. Is a friend or family member willing to lend you money? Write up an official loan document and pay back the loan back on time. Be sure the person can afford to lend you the money—and can afford to lose it if you can't repay the loan.
- Look to nonprofit programs for help. Are you in the military or a family member of someone who is? If so, you might qualify for assistance from a military aid society. The Army Emergency Relief, Navy-Marine Corps Relief Society, Air Force Aid Society and Coast Guard Mutual Assistance offer service members in need grants and interest-free loans. If you're not affiliated with the military, local community service agencies and charitable organizations sometimes provide loans or financial assistance.
- Ask your employer for a cash advance. Not to be confused with a payday loan, a paycheck advance is a cash advance from your employer that is repaid through deductions from future paychecks. Some employers offer this service, often through third-party lending companies. Generally, all employees are eligible for the same interest rates and loan terms no matter what their credit score. Bonus: If the third-party company your employer uses reports to the major credit bureaus, repaying your paycheck advance can help improve your credit score. Just make sure you understand the interest, fees and repayment terms.
Getting Money With No Credit
Even if you don't have a credit history, there are ways to get a small loan to cover sudden financial needs. The key is to look for lenders that focus less on your credit score and more on other factors, like your income or your job. But even if you do get a loan, not having credit may mean paying higher-than-normal interest and accepting unfavorable terms. By monitoring your credit report and taking steps to build your credit history (including paying off that small loan), you can help ensure future loans are easier to get.