Even though banks have been following the most trusted traditional lending systems, borrowers have shifted to direct lenders to fund their needs for one reason or another. One of the most common reasons for the change in this trend is lenders’ policies align with your immediate need of funds.
Bank benchmarks are stricter than loan companies and they are tenacious not to sign off on a loan in case of a bad credit history. However, lenders are generous to sanction short term loans without credit check or a guarantor.
Though lenders approve short term loans regardless of your credit report, it does not mean that they do not consider your creditworthiness. Here are some of the factors that your lender will mull over before deciding a credit limit.
When you put in a loan application, your lender will call for a credit report from the credit bureau. The report is assessed to calculate your credit score, which consists of details about your delinquent accounts, outstanding debts, hard inquiries, and the like. The lender will look out for consistent payment of your bills. The higher the score, the higher your creditworthiness is Lenders consider a credit report when you apply for secured loans. Personal loans do not contain high funds and therefore they disburse you the loan despite your credit history. Since they risk investing money in someone who is not reliable enough, the interest rate can be a bit higher. Loans with no guarantor and collateral may require a lender to run a soft credit check, but it does not add hard inquiries to your report, which means it does not affect your score.
Tip: Make sure that the credit bureau has not registered a defaulted payment otherwise your score will go down and lenders will turn down your applications. However, this is essential in case of secured loans.
Monthly income and expenditure
For unsecured loans, lenders will ask you to submit your income statement that will throw light on your finances available after meeting all your expenses such as medical bills, utility, education fees, rent, food and drinks, and so forth. Your real income is what you are left with after paying all of your outlays, which acts as a basis for deciding on a credit limit. A direct lender will examine your reimbursement capacity to make sure that you pay on time.
Tip: Try to cut down on your expenses. Put off investments on things that are not urgent. A carefully made budget can keep overspending at bay.
Credit card availability
Your lender will check how any credit cards available with you and how much you have used them. The lender will doubt about your creditworthiness if you have several cards with high limit. It is inferred as you fail to clear the dues. If your credit balance is almost close to the limit, your score will plummet down. It is recommended that your credit balance should not be over 30% of your credit card limit. Remember that your lender will also check how many cards you have applied within the last three months. Multiple credit accounts within a short span will take a toll on your credibility.
Tip: Try to clear all your dues on time. Use cash to pay your day-to-day and fixed monthly expenses. Use the credit card only when you need funds urgently.
The bottom line
Undoubtedly, loans without credit check or a guarantor do not ask a lender to go through your credit report, but you understand that what if you need a loan for buying your house or any land? As long as your credit report is stellar, you can negotiate interest rates with your lender even if you apply for unsecured loans.