Bad credit is seen as something of a hindrance when applying for loans, so the idea of getting personal loans with no credit checks can be confusing. This is arguably because of the perceived level of risk that a low credit score suggests, but because it is not the debilitating factor people think, less significance can be applied to it.

Approval always comes down to meeting the minimum criteria, but while it is true that this usually involves a credit check, there are certain circumstances where some lenders are willing to forego that right. And while guaranteed loan approval is still not assured, the removal of the bad credit hurdle helps to a degree.

There are more important factors than credit scores that lenders look to, like the debt-to-income ratio, but there is still some confusion as to why no credit checks need to be carried out when considering an application for a personal loan.

What Does No Credit Check Mean?

As confusing as it might be, a lender has the right to set the criteria applicants must meet if they are to get approval on their loan application. So, if they decide to approve personal loans with no credit checks then that is their choice. However, there is definitely method to the madness.

It is not just that such offers tend to attract more applicants, thereby increasing the amount of business being done, it also comes down to the fact that credit checks are not actually necessary. So ignoring credit histories makes logical sense, while also making a guaranteed loan approval possible for even applicants with the worst credit history.

The no credit check scheme works because attention is focused on the truly important criteria, allowing lenders to more accurately assess the risks involved. So, a personal loan granted on this basis is less likely to be defaulted upon.

The Most Important Criteria

Approval on personal loans with no credit checks is in no way guaranteed, but the matter is made a bit simpler when no reference is made to credit scores. Still, lenders have their criteria set and the most important is the debt-to-income ratio. This ratio is used as a measure by which loan repayments can be assessed as affordable or not.

The ratio sets a standard of 40:60, meaning that a maximum of 40% of an income can be spent on repaying debts and loans. The larger share of 60% is used for meet the regular costs of living, utility bills and to meet any sudden expenses, like medical bills. If an application fits inside the 40:60 ratio, then there is practically guaranteed loan approval.

The result is that the income that an applicant has is no guarantee of approval since it is the share of available income that matters. If a new personal loan moves the ratio above 40%, then the application will be rejected, even if the income is $10,000 per month.

Other Terms to Consider

The trick to getting approval on a personal loan with no credit check is finding the right lender, but these are generally found online. The terms that these lenders offer are essential to compare before signing by loan agreement. No credit checks are usually available with small loans, not large ones, with the loan limit usually $1,500.

The lower the loan the more likely guaranteed loan approval is, since the debt is lower. However, the interest rates are typically high, and repayment term is short - usually within 30 days. This means there can be real pressure to repay these personal loans, despite the advantages they offer.