Can I get a loan with no credit check?

Traditional lenders, such as banks or credit unions, routinely conduct thorough credit checks before approving individuals for personal loans. While this shouldn't be an issue for Canadians with high credit scores, for those with no credit history or a bad credit score, being approved for traditional loans in Canada can be difficult.

So, what other options are there for Canadians with bad credit? Is it possible to get a loan with no credit check? We've got the answers to no-check loans in Canada for you below.

Are there no credit check loans in Canada?

The short answer is yes. There are several types of loans available to Canadians that don't require a credit check. That said, loans with no credit check tend to have some red flags associated with them that you should be aware of before you sign on the dotted line of any loan agreement in the future, which we'll touch on a little later in this post.

What does having a poor credit score mean?

Think of credit scores as a grade you'd receive on a test; only in this scenario are you not graded on how well you can memorize certain facts or equations. You're being graded on how well you can manage your money and pay back funds you've borrowed.

A bad credit score is a red flag for traditional lenders. A credit score can range from 300 to 900. Take a closer look at scores and what they can mean to lenders in Canada:

• Anything below 560: Poor credit score

• 560 - 659: Fair credit score

• 660 - 724: Good credit score

• 725 - 759: Very good credit score

• 760 and above: Great credit score

As a general rule of thumb, anything under 560 is considered a poor credit score, which will likely impact your ability to borrow money from reputable lenders.

How is a credit score calculated?

Credit reporting agencies in Canada tend to keep their formulas for calculating scores secret. However, there are some factors that will for sure influence your credit history. Keep in mind, however, that the ongoing impact of these factors may be weighed differently depending on your unique financial situation. It's also important to mention that this is not an exhaustive list of factors:

• The length of your overall credit history.

• Whether there are balances on your credit cards.

• How often you make payments and whether you miss your payment deadlines each month.

• Your debt-to-income ratio.

• The types of credit you have, such as mortgage loans, credit card debt, personal loans, etc.

• How close you are to reaching your credit limit on each loan amount.

What is the average credit score in Canada?

So, what's the average credit score in Canada? The average score of Canadians is approximately 680, which is considered a "good" credit score. That said, scores can range significantly based on income level, age, and spending habits, so this average won't necessarily apply to everyone.

What is the difference between banks and credit unions?

When we talk about personal loans from traditional lenders, we're usually referring to banks and credit unions. While they can be used interchangeably from time to time when it comes to borrowing money, these two institutions are different in many ways. So, what example is the difference between credit unions vs. banks?

The biggest difference between credit unions and financial institutions is their profit systems. Banks are privately managed or owned by the shareholders, and their primary purpose is to make the most profits. Credit unions, on the other hand, are member-owned organizations that are not-for-profit. This means that the profits made by the credit union are reinvested into the organization or given to their members through dividends. A portion of their profits is also reinvested into the community.

Generally speaking, banks are able to provide more services than credit unions do. This is because they have a larger client base, which typically spans the entirety of Canada, while a credit union has a smaller, more localized base of customers.

Both have their pros and cons, and which you decide to get a loan with or do your banking with will ultimately vary depending on your individual financial goals and the different services you require.

What no credit check loan options are there?

Getting a personal loan with bad credit may not be possible. However, there are several alternative methods you can try that do not require a credit check. Here's a closer look at some loans with no credit check in Canada:

Payday loans

Payday loans are a form of short-term, unsecured loan that could serve as an immediate solution if you require emergency financing. Payday lenders will provide you with a cash advance based on your upcoming paycheque with instant approval. The goal here is that you should be able to repay the loan amount as soon as you get paid by your employer.

If you're thinking, "Wow. this seems too good to be true," you're spot on. While instant payday loans in Canada offer quick fixes to your financial problems, payday lenders typically charge extremely high interest rates. So, even if you are able to pay back your payday loans in time, the interest on your loan will be way more than what you originally borrowed.

Additionally, if you borrow money through payday loans and are unable to make your loan payments on time, you can dig yourself further into debt, which, in this case, will be difficult to get yourself out of.

Cash advances

Another type of no-credit check loan is cash advances. Cash advances are, again, short-term, unsecured loans in Canada that are similar to payday loans but with more flexibility. There are several ways you can get cash advances, including cash advance apps or an advance on a credit card.

While payday loans often require you to pay back your borrowed money by your next paycheque, most cash advances offer you the ability to make monthly payments. Just keep in mind that these types of loans also have higher interest rates and require upfront fees.

Installment loans

Some online loans and credit unions offer instalment loans with repayment terms that range anywhere from 2 to 18 months. Unlike payday loans and cash advances, a personal instalment loan often has a more affordable interest rate.

One thing to note, however, is that personal instalment loans in Canada may require what is known as a soft credit check before your loan is approved. Unlike a hard credit check that analyzes your credit report and negatively impacts your credit score, a soft credit check will not influence your credit score.

Buy now, pay later

Buy now, pay later is a type of online loan service that allows you to buy things online and pay for your purchases at a later date without interest. Most of the time, these credit loans won't run a credit check on you. However, depending on which online lenders you apply with, a soft credit check may be conducted.

Why do some lenders offer loans in Canada with no credit check?

As we mentioned, financial institutions and credit unions in Canada require credit checks before lending money. And the unfortunate reality is that you may not be able to get a personal loan with bad credit.

So, why do some lenders approve applicants without a credit check?

One of the reasons these types of lenders are able to lend to riskier customers is that they can offset this risk with higher interest rates and additional fees. Therefore, while it's possible you'll be approved for a loan without a credit check from these lenders, it will cost you more money at the end of the day.

How to get a no-credit check personal loan

How to get a bank loan and how to get a loan with bad or no credit are similar in many respects. So, if you want to apply for bad credit loans in Canada, here's what you need to do:

Shop around and compare lenders

Like traditional loans, before signing a contract for a no-credit check loan, the best thing you can do is shop around and compare lenders. Some things you'll want to consider when comparing lenders are their offered interest rates, repayment terms, loan amounts, and their overall reputation.

Because you're not going through a credit check, you really want to make sure that you're borrowing money from a reputable lender. Many lenders take advantage of those looking for a quick cash advance. So, pay attention to the terms and conditions of your loan contract, and ask as many questions beforehand to ensure you feel comfortable borrowing money from them.

Fill out the loan application

Once you've agreed on an interest rate, the loan amount, and your repayment terms, you can now go ahead and fill out the loan application. While some lenders won't ask for your credit history, they may ask you to provide recent bank statements, proof of your monthly income, and proof that you have an active bank account during this process.

Wait for your loan approval

Now it's time to wait. Loans in Canada, like payday loans, often have instant approval rates or approvals in just a few minutes. Others may take longer, depending on the loan amount you've applied for.

Get your funds transferred into your bank account

After your application has been approved, you'll typically get a confirmation from the lender. At that time, the funds will be transferred into your Canadian bank account for you to use as you wish.

Make your monthly payments

Remember, like traditional loans, you'll need to make monthly payments until you pay off the principal amount plus interest. To ensure you avoid late fees and prevent yourself from being unable to pay these types of loans, make sure to pay off at least the minimum amount each month.

What to look for when comparing loans with no credit check

Unlike unsecured and secured loans in Canada from financial institutions or unions that require a credit check, no credit check loans can come with some risks, and there are several ways these types of lenders can take advantage of your financial situation. This is exactly why it's essential that you only look into certain types of no-credit-check loans and pay particular attention to the following:

Interest rates

Although no credit check loans may appear like they're a good idea at first glance, as we mentioned, they often come with high interest rates, which means you'll need to repay a significant amount more than you borrowed in the end. To avoid paying an obscene amount, make sure you compare interest rates from a couple of different lenders before signing your loan agreement. Even with low credit scores, you should be able to find a lender with a moderate rate.

Repayment terms

Beyond interest rates, you'll also need to read over the repayment terms and conditions before signing your loan agreement. Sometimes, lenders will penalize you if you make a payment ahead of your repayment schedule. To avoid this, ask whether it's possible to pay off the entirety of the loan before the term has ended.

Additionally, having a longer repayment term means you'll pay more interest compared to a shorter term. To prevent having to pay a substantial amount on top of the initial loan, try to find no-check loans in Canada with a term you feel comfortable paying.

Additional fees

Further, some no-check loans come with hidden fees that you may not otherwise know about. Make sure you clarify with your lender whether any origination fees, late/early payment fees, application fees, or insufficient funds penalties are listed in your agreement. Otherwise, you could end up paying more than you expected.

Reviews for online lenders

Lastly, if you're considering online lenders, the best thing you can do before submitting your application is check their online reviews. To avoid predatory lenders online, taking a couple of minutes to look at their reviews from previous customers is the best thing you can do. You'll also want to avoid lenders who approach you first, require upfront fees, and those with inflated interest rates, as these tend to be lenders who are there to take advantage of your financial situation.

Alternative lenders for no credit check loans

If you aren't sold on no credit check loans in Canada, there are some alternatives you may want to consider before losing hope:

Pawn shop loan

With pawn shop loans, you'll need to provide collateral, which is an asset with a high value, before the business provides you with funds. In the event, you're unable to pay back your loan on time or in full, the pawn shop essentially takes possession of your item as a repayment for their loan.

Most pawn shops will offer between 20% and 60% of the value of the asset you offer them as collateral, with interest rates up to 30%. You may also need to pay storage fees for your item until you pay back the entirety of the loan.

Credit cards

If you qualify with your current bank account, you may be able to open a new credit card. Credit cards, and virtual credit cards for that matter, tend to have lower interest rates compared to no-credit check loans in Canada.

For example, a no-credit check loan typically has an APR that starts at and is often more than 100%, while a credit card's APR ranges between 20% and 25%, which is still enough to contribute to your overall debt if you do not choose to use your credit wisely.

Guarantor loan

If you have a close friend or family member with a good credit score, you can always ask them to co-sign on personal loans to help you qualify for ones with better terms and from more reputable lenders.

Keep in mind, however, that having a co-signer means they take on responsibility for your debts if you are unable to pay back your personal loans on time or in their full amount. It's important that both you and your co-signer understand the risks involved with this type of loan before any contracts are signed.

Car title loan

With car title loans, you'll be able to use your vehicle as collateral as long as it has been paid in full and no outstanding debts are remaining on the car. Using your vehicle as collateral could enable you to access loans in Canada with higher limits. However, you could put yourself at risk of losing your vehicle if you're unable to pay your loan back.

With car title loans, you're typically able to borrow between 25% and 50% of your vehicle's current value with an APR interest rate ranging between 10% and 50%.

Loan from family or friends

Lastly, if your bank account is severely low and you're unable to get a personal loan or other loan type due to your credit score, you can always ask a close family member or friend for a loan. While there's a chance they won't make you pay interest on the loan, your inability to pay them back could cause some awkward tension during the holidays.

How to fix your bad credit score

Poor credit puts a stain on your credit report. However, there are ways you can improve your credit history and score. While it may take a while, improving your score overall is highly beneficial as it will enable you to qualify for larger loans like mortgages in the future. Here are some ways you can fix bad credit:

Make payments on time

Making on-time payments shows creditors that you can use and repay your obligations properly. In fact, your payment history has a significant impact on your overall credit score. In many ways, it shows lenders that you are a reliable individual with a lower-risk assessment who knows how to manage their money. In contrast, missed payments will be noted on your credit report, which will be a significant red signal for lenders if you apply for a loan later on.

To address this, set up automated payments with your bank. This makes sure the required minimum payment or another amount you specify is sent from your account to your credit before the due date. If your bank does not provide this option, you can still set automatic reminders on your cell phone to keep you motivated.

Even if you miss the deadline, you should try to pay off the minimum amount or pay it more quickly. Most lenders overlook a missing payment until it is a month or so late.

Strategic credit card usage

In addition to making timely payments and keeping your credit usage ratio low, you should try to use your credit as carefully as possible. In the end, using credit carefully and paying it off on time is an ideal way to enhance your credit scores.

To demonstrate to creditors that you can spend responsibly, consider utilizing credit cards for small, manageable costs that you would otherwise need to pay for anyway, like groceries or gas. Further, if you're able to do so, try to pay off the entire amount of your credit card each month rather than make minimum payments, as it can prevent you from paying interest.

Wait it out and be patient

Always be patient with your money situation and overall financial wellness. A major change in your credit won't take place overnight. Think long-term.

Developing responsible spending habits now will help you prepare for the future. Check your bank statements and set up automated payments to ensure you pay on time. Only use your credit card when absolutely necessary. Although it may be tough to change your spending habits at first, budgeting ahead of time and living within your financial capabilities will help you attain a healthy credit score in the 700s or above in the future.

Keep your credit utilization ratio low

Your credit utilization score represents how much debt you owe in comparison to the funds you have at your disposal. Generally, this ratio accounts for approximately 30% of your total credit score and should be below 40% at all times. Anything beyond that signifies to creditors that your plans for spending and saving are not working. In other words, it implies that you are living beyond your means and are unable to manage your debt obligations.

To keep this utilization ratio as low as possible, we recommend paying off high-interest debt first, which can help lower the amount of money you owe over time. At the very least, you'll need to make the minimum payment each month to ensure that you are generating any interest owed on your debt.

Build your credit with KOHO

At KOHO, we're pleased to offer everyday Canadians a range of financial products and services that can help them take control of their short and long-term financial goals.

With virtual credit card options and free credit score checks available, you can get a better idea about your credit health from the comfort of your own home--or on the go!

If, after the check, your score isn't where you want it to be, you can build your credit with KOHO while saving for the future! We've got high-interest savings accounts and overdraft protection coverage to ensure you're able to make your monthly payments on time, no matter where life takes you!