Online payday lenders and brokers
Many payday lenders and credit brokers have a very visible online presence, indeed some companies operate exclusively online and claim to offer no credit check payday loans online.
No credit check payday loans online
If you look on the internet for payday loans, you may find some companies who claim to provide no credit check payday loans online.
Payday loans are designed to provide funds in case of financial emergency, so many applicants are seeking quick loans. However, no matter how quickly you think you need the cash, you should be very wary indeed of accepting a no credit check payday loan.
A no credit check payday loan is one that is provided without the lender conducting any assessment of whether you are likely to be able to repay it.
Risks of taking out no credit check payday loans online
So why is not recommended that you take out one of these loans?
Firstly, taking out a loan that you cannot repay is itself very risky. Failing to repay a loan, even a small one of a few hundred pounds, can lead to serious financial problems further down the line as your debt remains outstanding and the interest and charges on the loan increase. Your chances of being approved for personal loans and other forms of credit in the future will be greatly reduced, and the lender may even take legal action against you to recover its debt.
The second major risk you are taking by effecting a no credit check loan is that you will then most likely be dealing with a company that is not concerned about following the rules.
FCA regulation and authorisation of lenders
Payday loans and other financial services activity in the UK is regulated by the Financial Conduct Authority (FCA). All lenders and credit brokers need to be authorised by the FCA, including those that operate online. Once authorised, companies need to comply with the FCA’s very large rulebook.
If a company is claiming to offer a no credit check payday loan, then it may suggest that the company in question is not authorised by the FCA. Any company that carries out financial services activity in the UK without FCA authorisation is committing a criminal offence.
You can check whether a particular company is authorised by searching the Financial Services Register. There is a prominent link to this Register from the homepage of the FCA website. Alternatively, if you phone the FCA’s Consumer Helpdesk they can tell you whether a particular company is indeed authorised.
What does a credit check involve?
One of the key FCA rules lenders need to follow is that they must carry out a rigorous assessment of whether an applicant can afford to repay the loan they are seeking. Part of this process involves carrying out a credit check.
A credit check is a comprehensive review of your previous record in repaying loans, mortgages, credit cards etc. This record is known as your credit history. Any previous missed payments and defaults will be shown on a credit check unless the loan or mortgage in question ended more than six years ago. Your own personal credit check will also show any defaults/missed payments made by people you have a financial link to, such as anyone you live with.
The credit check also shows whether you have ever been overdrawn, have ever had County Court Judgements recorded against you, and whether you have ever been declared bankrupt.
How might a lender use a credit check?
The information on your credit check is used to determine an overall credit score. The lender will use your credit score, and the information in your credit check in general, to determine whether they should approve your loan application.
Sometimes a lender might decline an application outright if your credit score is below a certain level. Alternatively, the lender might decide that other information on your credit file indicates that it would be too risky to lend to you. If you have a poor credit history, another possibility is that a lender could approve your application, but force you to pay a higher rate of interest to reflect the increased risk the company believes you would pose.
Whilst it may be disappointing to have a loan application refused, remember that no company wants to lend money that might not be paid back.