The short answer to the question Do no credit check payday loans exist? is Yes. However, a fuller answer would be that, while they do exist, they shouldn’t be offered by lenders – in the UK at least.
What is a credit check?
A credit check is defined by Collins English Dictionary as ‘a check performed by a company selling goods on credit to establish if a potential customer is creditworthy.’ But do no credit check payday loans exist? So, when you apply for a loan, the lender should check your past credit record to assess how likely it is that you will be able to repay the loan. A credit check, or credit search, will show whether you have managed to repay loans you have taken out in the past, or whether you have instead struggled to meet your obligations. A credit check will show:
- Any previously missed payments or defaults on loans, credit cards, hire purchase and other borrowings
- Occasions on which you have been overdrawn
- Any County Court Judgements registered against you in the past
- Any occasions on which you have been declared bankrupt, or have entered into a formal insolvency arrangement such as an Individual Voluntary Arrangement
The lender will then use this information to decide whether to grant you a loan.
Do no credit check payday loans exist? The rules.
Payday lenders and brokers offering access to similar short-term personal loans need to be authorised by the Financial Conduct Authority (FCA). The FCA has a very large rule book which firms need to follow, and one of its rules says that all lenders must carry out a credit check on each applicant before agreeing to give them a loan. Hence, the blunt truth is that any company that suggests it can provide no credit check loans is breaking the rules.
Payday loans are quick loans in the sense that you may not have to wait long to receive the funds in your bank account. However, no matter how quickly you need the money, you should never be tempted to speed up the process by agreeing to a loan where no credit check is carried out.
Why a credit check is important
The regulatory environment that the FCA supervises is primarily designed to protect customers. The rule requiring lenders to carry out credit checks is also designed to protect the customer. You should never take out any loan unless you are confident you can pay it back, but once you have passed a credit check, you should hopefully have additional re-assurance. Passing a credit check means that the lender agrees that there isn’t a significant risk of you defaulting on the loan and failing to make the required repayments.
The risks of taking a no credit check loan
Taking out a no credit check loan means therefore that no-one has considered whether you are likely to be able to repay the loan. A payday loan is usually for a small amount, such as a few hundred pounds, but if you can’t repay a payday loan, you could find yourself in serious financial difficulty. The debt increases the longer it remains outstanding, as do the lender’s fees and charges. Also consider – if you haven’t got the means to repay a payday loan one month, what will have changed for the better in the following month?
Do no credit check payday loans exist? Illegal lenders operating without authorisation
As mentioned before, companies that offer no credit check loans are breaking the FCA’s rules. On occasions, it may also indicate that the company is operating without FCA authorisation. It is a criminal offence to carry out financial services activity in the UK without authorisation, yet the FCA publishes details on its website almost every day of firms found to be operating illegally.
You can check whether a company is authorised by searching the Financial Services Register – just go to the homepage of the FCA website and follow the prominent link to the Register. If you call the FCA’s dedicated consumer helpline, they will also tell you whether a particular company has been authorised.
If you come across a company claiming to offer no credit check payday loans, then you may also want to share your experiences with the regulator, the FCA.
If you accept a loan from an illegal lender, you will have no legal protection if things go wrong. You won’t be able to refer a complaint about the company to the Financial Ombudsman Service, which is an independent complaint adjudication body.