Select Page

Borrowing money should be easy. The process of filling out an application is not exactly an algebra test. Specific personal and financial information is all that is generally required. Of course, the lending institution reviewing the application also has its own criteria. Lenders may be unwilling to provide an installment loan to someone who might prove to be a high-risk candidate. If the lender does not receive timely payment or, worse, suffers a default, then the lender loses money.

A person with no credit might be the most honest and responsible person in the world, but he/she is still an individual without a credit history. Hence, he/she is not the greatest candidate for an installment loan.

This does not mean, however, installment loans are out of the grasp of someone with little or no credit.

The Basics of an Installment Loan

Unlike a credit card, an account involving revolving debt, installment loans are based on the issuance of a fixed loan amount. The loan is intended to be paid back over a set amount of time. A personal loan for $1,500 may need to be repaid within 24 months. Each month, a minimum amount is required to be paid.

Personal loans do not require collateral. Hence, the only basis the lender goes by to determine eligibility is the applicant’s credit history. This is where someone with no credit ends up running into slight trouble. The trouble is “slight” because it may be overcome.

Easy Credit Option

One way to build up a credit history would be to apply for a department store or gasoline credit card with a low limit. $500 in credit is not too much of a risk for a major bank supporting the card. Charging a debt and promptly repaying the debt does build up an actual credit history.

Not everyone has time to do this, though. A borrower may need a loan right away. There are other steps that could be undertaken.

Asking a Cosigner

A cosigner is someone who puts his or her name on the loan application and, in essence, accepts responsibility for repaying the loan if the primary borrower defaults. A person without a credit history can always ask someone with a solid credit history to cosign. Doing so greatly increases the chances of the loan being approved.

Exploring Regional Borrowing Options

A mailbox can be stuffed with many offers for low-interest loans. The financial institutions may be headquartered in far away states and major metropolitan locations. The advertising for the loans might promise a lot, but the actual delivery for someone with no credit might be disappointing. In other words, “the big bank” denies the application.

Local banks and credit unions may be more willing to approve a loan for someone with no credit. This is not to suggest the local enterprises are a source of guaranteed approvals, but the chances of being approved may be higher.

Checking Out Available Options

While looking local is advised, so is looking everywhere. Specifically, look for lenders known for approving applications for those with no real credit history. The internet makes researching such information fairly easy. A lender that has made it standard business practice to be friendly to those interested in applying for a loan who may be worried about their lack of credit.

Examining Alternative Lending Methods

The unique business model of peer-to-peer lending is available to those interested in borrowing from private investors. Peer-to-peer loans are designed for people who have very limited borrowing options. Peer-to-peer loans exist as investment opportunities for those hoping to make a great return on any funds they put forth on a loan. If the two parties are able to work a borrower-lender arrangement together, both may end up being very happy.

The Interest Rate Issue

Low-interest rates may not be easy to find when someone has little or no credit history. Certain borrowing sources are known for presenting very high rates of interest. Troubled borrowers need to accept a high rate of interest may prove to be unavoidable.

Interest rates are not forever nor are specific loans. Once a decent credit history is built up, refinancing and acquiring a new loan at a lower rate of interest is possible.