Personal Loans With No Credit Checks – What To Watch Out For

Sub Editor · 12 June 2020
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.

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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.

Types of personal loans with no credit check

While there are some lenders that may approve you without a credit check, these types of loans are generally more expensive and riskier than traditional personal loans. It is worth noting they may have stricter application requirements, including minimum income or employment requirements.

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, in collaboration with 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 ASIC’s Moneysmart 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 most recent address for more than 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 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 – according to the new scheme’s website, to access one of these loans a borrower must:

  • be aged 18 years or over
  • be an Australian citizen, permanent resident, or hold a valid visa that expires after the loan term
  • have an annual income of less than $60,000 before tax (for a single), or less than $100,000 for couples or people with dependents
  • have either lost their job, had their income reduced (including if they are self-employed), moved onto Centrelink payments after March 2020 or been otherwise financially impacted by Covid-19

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

Payday loans/cash loans with no credit check

Payday loans, known formally as small amount loans, are typically unsecured, not provided by a deposit-taking institution (ADI), have a credit limit of $2,000 or less and a term between 16 days and one year, according to ASIC’s 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 size of the loan 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”.

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.

What are personal loans?

Personal loans are when you borrow a specific amount of money from a financial institution and then repay the debt with interest in equal payments over an agreed term. In Australia, most personal loans require a credit check as part of the application process. In some cases, lenders may allow borrowers the option to make extra repayments, which can be helpful in that every dollar you repay above the required amount shortens the life and overall cost of the loan.

A normal personal loan is quite different to a no-credit-check personal loan, as they tend to be somewhat less risky and costly. They are also considered to be cheaper (on average) than using a credit card, with the added benefit of giving borrowers the discipline of a repayment schedule.

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 the fees and loan conditions that apply, before making a decision.

How can I get a better credit score?

Your credit rating can be affected by a range of factors, including how often you apply for credit cards, the success of those applications and late payments or no payments. To give yourself a benchmark, you can check your credit score for free with Canstar.

Budgeting and finance

With Australia in a recession, being money smart is important. Our Budgeting and Saving Money section includes the latest news and articles that may be of interest.

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This article was originally written by Ellie McLachlan

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