No credit check personal loans – what to watch out for

Sub Editor · 15 June 2021
Getting a personal loan that doesn’t take your credit rating into account is challenging, but may be possible in some cases. However, it is an option you should carefully consider before proceeding, given these types of products can be riskier and more expensive than other types of personal loans. Researching the fees, interest rates, contract terms and risks that can apply is important with this in mind.

If you are concerned about your credit score, it may also be worth considering whether taking out this type of loan is a good idea at all.

In this article, we cover:

What is a personal loan?

A personal loan is when you borrow a specific amount of money from a financial institution and then repay the debt with interest, typically in equal payments over an agreed term. Some lenders may allow borrowers the option to make extra repayments, which can be helpful in that every dollar you can afford to repay above the required minimum amount shortens the life and overall cost of the loan.

In Australia, most traditional personal loans from a bank, credit union or other lender require a credit check as part of the application process. This is when a lender assesses how likely you are to repay the loan you’re applying for, based on your credit score and repayment history. In some cases, however, lenders may offer personal loans that don’t involve a credit check.

A normal or traditional personal loan is quite different to a no-credit-check personal loan. For one thing, a traditional personal loan tends to be somewhat less risky and less costly than one that doesn’t require a credit check. They are also often considered to be cheaper (on average) than using a credit card, with the added benefit of giving borrowers the discipline of a repayment schedule. On the other hand, some personal loans that don’t require a credit check can be significantly more expensive, particularly in the case of short-term personal loans (also referred to as payday loans).

If you are in the market for a personal loan, it’s important to compare your options carefully and to look closely at the interest rate on offer, along with all the fees and loan conditions that may apply, before making a decision. You may also want to consider seeking professional financial advice.

→ You can check your credit score for free

Types of personal loans with no credit check

While there are some private lenders that may approve you without a credit check, these types of loans are generally more expensive and riskier than traditional personal loans. In terms of government-sponsored loans, these tend not to be as expensive but may have strict application requirements, including means-testing or other eligibility criteria.

Here is a selection of some of the lending options that may be available, and some risks you should keep in mind.

No Interest Loan Scheme (NILS)

The No Interest Loan Scheme (NILS) is an Australian Government-supported program run by Good Shepherd Australia, and supported by National Australia Bank (NAB). The scheme allows eligible borrowers to take out a loan of up to $1,500 without a credit check, to be spent on essential purchases such as household appliances, educational materials, car repairs and some medical and dental services. The money cannot be taken in cash, nor can it be spent on other items like food, rent or bills, the scheme’s website advises.

There are no credit checks, interest or fees for NILS loans, but there are eligibility criteria. Specifically, according to financial regulator ASIC’s Moneysmart website and the NILS website, to get a NILS loan you must:

  • have either a Health Care Card, a Pensioner Concession Card or an income less than $45,000 per year after tax (or $60,000 for couples or people with dependants)
  • have lived at your current or previous address for at least three months
  • be able to show that you can repay the loan.

If you are struggling financially, it may be worth considering a NILS loan before looking at a costlier option such as a payday loan or other personal loan. You could start by heading to the NILS website to learn more about these loans or to enquire as to whether you may be eligible.

Household Relief Loans without interest

In light of the ongoing financial effects of the coronavirus pandemic, Good Shepherd is also currently offering no-interest, fee-free loans of up to $3,000 without a credit check to eligible borrowers, again supported by NAB and the Australian Government. These loans of up to $3,000 are designed to be spent on utility bills and rent and repaid over 24 months, according to the scheme’s website. However, as with NILS loans, there are some eligibility criteria to be aware of. Specifically, according to the scheme’s website, to access one of these loans a borrower must:

  • be aged 16 years or over
  • be an Australian citizen, permanent resident, or hold a valid visa that expires after the loan term
  • have an annual before-tax income of less than $60,000 (for a single), or less than $100,000 for couples or people with dependants
  • have either lost their job, had their income reduced (including if they are self-employed), moved onto Centrelink payments or been otherwise financially impacted by Covid-19” since 1 February, 2020.

To learn more about Household Relief Loans without interest, you can head to the program’s website.

Payday loans/small amount loans with no credit check

Payday loans, known formally as small amount loans, are typically unsecured, not provided by an authorised deposit-taking institution (ADI) such as a bank, have a credit limit of $2,000 or less and a term between 16 days and one year, according to Moneysmart.

Borrowers can often take out one of these loans quickly and with no credit check, but Moneysmart warns that while lenders can’t technically charge interest on these loans, they tend to come with “a lot of fees” attached, which will typically outweigh the interest that would be charged on a more traditional personal loan with a credit check.

In 2019, ASIC intervened to ban short-term credit providers and their associates from charging fees that exceeded prescribed limits for regulated credit. Such fees had been found to cause “significant consumer detriment”. Even so, the fees on these loans can still exceed the amount borrowed in many cases, and you should seriously consider the terms and conditions of such a product before thinking of applying for one.

For example, Moneysmart reports that these small amount loans generally include establishment fees of 20% of the loan amount and a “monthly service fee” of 4%. In addition, the National Debt Helpline warns some lenders may also charge late payment fees of $7 per day and default fees of “up to twice the amount you borrowed”. A payday loan is likely to be significantly more expensive than other types of personal loans, and your credit score could be negatively affected if you are unable to repay it within the tight timeframe of a year or less. With this in mind, it is a good idea to check out all of your alternative options first.

Free financial counselling is available to support you if you need it, such as from the National Debt Helpline on 1800 007 007. Alternatively, you could contact your energy, phone, water or financial services provider to see if you can work out a payment plan suited to your needs. If you are on government benefits, you could also get in touch with Centrelink on 13 17 94 to see if you can receive an advance payment. Finally, the Moneysmart website provides some helpful information on how payday loans work and suggests some other options that may help you.

How can I get a better credit score?

Your credit rating can be affected by a range of factors, including:

  • how often you have applied for personal loans, credit cards and other forms of credit in the last few years
  • the success of those applications
  • your repayment history, including whether you have had any late payments or missed payments.

To give yourself a benchmark, you can check your credit score for free with Canstar.

This article was originally written by Ellie McLachlan.

Cover image source: Carla Nichiata/

Thanks for visiting Canstar, Australia’s biggest financial comparison site*