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No credit check loans & instant decision: Don’t fall for them!

No credit check loans & instant decision: Don’t fall for them!

21 December 2020 Concept Car

Is it possible to get loans without any kind of credit check? You’ll be surprised to hear it, but: not only can you get just that. You can even get an instant decision on your application!

But is that really wise?

Just because it’s possible, doesn’t mean it’s a good idea. As we’ll show you in this article, there are good reasons why lenders usually insist on a few entry barriers. Also, even if your dealer doesn’t demand a credit check, they can still request alternative checks.

Either way, no credit check loans are NOT preferable in any way.

Are you nonetheless looking for just such a loan? Then allow us to show you some of the pros and cons and what you absolutely need to look out for.

What is a bad credit score?

If you’re worried about a credit check, you probably know or assume your credit score is pretty bad. But just how bad is pretty bad? And when do lenders go from considering you an asset to considering you a burden?

What you need to know is this: Different lenders may use different credit rating agencies. All of them work with almost exactly the same concept.

Your score can either be excellent, good, average, poor or very poor. As long as you’re average, you don’t need to worry. You can assume that you’ll get a decent offer. If your score is poor, your chances of getting a deal are still very high. You will, however, need to pay a lot more for it.

Only if your score is truly very poor will you need to start looking for no credit check loans with instant decision. With Experian, arguably the most important rating agency in the UK, that would be a score below the mark of 561 points.

At Concept Car Credit, we don’t usually insist on a credit check.

To give you an idea of the way a no credit check loan can look like in practise, let’s take our approach at CCC as an example.

First off, we don’t offer guaranteed loans. We’ll explain why in the next paragraph. We do, however, offer no credit check loans.

First, in a friendly phone conversation, we’ll assess your financial situation.

We’ll discuss:

  • how much you can pay each month,
  • if and what kind of a down payment you can make,
  • your disposable income and any debt issues.

If this all looks good, we can usually proceed without a credit check. And you’ll typically hear back from us on the same day. If there’s no problem, why drag the process out for weeks?

What’s wrong with guaranteed loans?

As mentioned, we never ever guarantee anyone a loan. We do, however, accept the vast majority of applications we get. So why not just go one step further and make a full acceptance promise?

Very simple: Because it’s not allowed. There are no guaranteed acceptance loans in the UK and for a very good reason. Some people are just better off without piling up yet more debt.

Handing out credit far too leniently was at the heart of the UK’s previous debt crises. And it got millions into serious financial trouble.

Guaranteed loans are also a bad idea, because they usually include skyhigh interest rates. So you’re effectively doubling the dilemma: Offering a loan to someone who probably shouldn’t get one. And then making it so expensive they’re unlikely to ever pay it back in full.

It’s asking for trouble, plain and simple. This is not something we want you to have to go through.

Paying by credit card and using your line of credit - Concept Car CreditPaying by credit card and using your line of credit

Even payday loans are never entirely guaranteed, although they can have acceptance rates of up to 97%. Which is decidedly for the better, since these loans are never a good idea and you should avoid them at all cost.

Still, there is an option which comes pretty close to a no credit check instant decision loan:

Paying by credit card or using your line of credit with your bank.

In both cases, you won’t have to check for permission with the lender, because they have already agreed you can go into the red a little. Yes, in a way, paying by credit card is like taking up a loan, with the interest rate already fixed and agreed upon beforehand. When seen from this angle, your line of credit is pretty much the same.

We can’t say this is a very good idea, though.

Paying for a car with a credit card has multiple problems.

  • Credit cards work fine if you have a very high income. As long as your cash flow is excellent, you simply pay off your credit card debt at the end of the month and avoid costly interest. But if your income is low and you’re having trouble making ends meet, you’re saddled with credit card debt for a far longer time. This is where things can get insanely expensive. You also run the risk of ruining your credit score this way.
  • Paying by credit card has multiple advantages for you as a buyer from a consumer rights perspective. Even if you pay just a tiny amount towards your car by card, you enjoy much better buyer protection. This sounds great in theory. In practise, however, this is exactly why so many dealers won’t allow credit card payments. So as nice as they may sound, credit card payments are usually just wishful thinking.
  • Pretty much the same applies for your line of credit as well. The one thing that you should note here is that your line of credit will usually be limited. So we very much doubt that you’ll even be able to finance a car using it. Plus, going deep into debt on your current account will create a dangerous situation where you’re constantly in the red. Usually, this is the first step towards an eventual default.

Unfortunately, this means you’ll most likely be stuck with loans which demand a credit check. Which, in turn, can mean you won’t get accepted.

Why do so many lenders insist on a credit check?

First off, we should probably define the term ‘credit check’.

Obviously, when we decide on your application, we also take a look at your financial situation. This is important, because we can only make a tailor-made offer based on these numbers.

That, however, is not what most people – and most banks – mean when they’re talking about a credit check.

Rather, they’re referring to a very specific check-up, which is based mainly around one specific number: Your credit score or credit rating.

Lenders like this type of check, because it is easy and fast and vaguely ‘objective’. This means they can take a decision quickly and without having to do any work of their own. The credit score has been in use for a long time as well, which lends it a certain stature.

Many experts consider the credit score ‘flawed’ or ‘not enough’ or ‘just a start’. But you’ll be hard pressed to find anyone who will full-on dismiss it.

This is because a credit check can indeed make sense.

We’ve already mentioned that credit checks are very useful for the lender, i.e. the bank or dealer granting you a loan. Truth be told, although we’ve criticised them before, we do believe that they’re not quite as bad as their reputation.

There are quite a few reasons why credit checks make sense for you as well:

  • They can protect you from unwise financial behaviour. What is a credit check? It’s a very concise summary of how you dealt with debt in the past. The higher the score, the more diligently you paid it back. The lower the score, the more late or missed payments there were. So even if you can pay back a loan, a bad rating means you should be careful and learn from your mistakes.
  • The main problem most people have with the credit score is not that it exists and that many lenders use it. The main problem is that so many banks rely almost exclusively on this one number. After all, you can have the exact same credit score as someone else but these numbers can mean entirely different things. Also, when it comes to being able to pay back a loan, there are far more meaningful factors to consider. As part of a lender’s considerations, however, there’s nothing wrong with it per se.

What other factors should you consider?

The credit score does a decent job of predicting your future financial behaviour. But it is far from perfect.

This is mostly for two reasons:

  1. Missed or late payments stay on record for a very long time. So events from the distant past are now weighing heavy on your current chances for getting accepted.
  2. The credit score says absolutely nothing about how much money you can reasonably pay back. It only records a few events related to your debt payments.

As such, the following factors offer far more powerful predictions:

  • Your current income.
  • Your income to debt ratio.
  • Financial reserves.
  • Whether or not you have a guarantor who can step in for you in case something goes wrong.
  • The stability of your job.

This are the point we personally find most important. As long as your potential lender takes these – or at least a few of these – points into consideration, you should be on the safe side.

21 December 2020 Concept Car