What are no credit check payday loans? A ‘no credit check payday loan’ is a small short-term loan which is provided without the lender conducting an assessment of how likely it is that the applicant will be able to repay the loan.
What are payday loans?
Payday loans are a special type of personal loans which are of very short duration. Only a short time ago, almost all payday loans were offered with terms of around 30 days, and the borrower would repay the sum borrowed from their next pay cheque, i.e. on ‘payday’. Many payday lenders however now offer loans over three-month periods or even loans with terms of up to one year.
Payday loans are intended to be quick loans. As they are designed to provide funds to tide borrowers over in the case of financial emergency, it can be vitally important that the funds are provided quickly. Payday lenders often claim to be able to transfer the money to the customer’s bank account within hours of the application.
What is a credit check?
A credit check is a comprehensive review of an individual’s financial history, designed to allow a lender to judge whether they should agree to lend money to a particular customer. Credit checks show whether a particular person has missed repayments on loans and other forms of credit in the past. They also indicate whether the individual has been overdrawn, whether they have had County Court Judgements, whether they have ever been declared bankrupt, etc.
A credit check will show details of all loans, credit cards and mortgages that are currently in force in your name, plus any such arrangements that have ended in the last six years.
What is a credit score and how is it used by lenders?
Together, the information in a credit check makes up your ‘credit history’. The information is used to calculate your ‘credit score’ – an overall indication of how risky it might be to lend money to you.
If you have an adverse credit history, then a lender may decide that you just pose too much of a risk. It could, therefore, decline your application outright. Alternatively, the lender may decide that they can lend to you, but only at a higher interest rate than that offered to another applicant who has a good credit history.
Clearly, if a company decides to loan money to someone when they have no idea if the individual is likely to be able to pay it back, then they are taking a massive risk. If a lender loans money and then never receives any repayment, then evidently it has lost that money for good.
No credit check payday loans are now illegal in the UK. The regulator, the Financial Conduct Authority (FCA), requires all lenders to carry out an assessment of an applicant’s financial circumstances before approving an application for a loan or any other form of credit.
Companies are not permitted to offer any form of loan or credit in the UK unless they have first applied to the FCA for authorisation, and then be approved.
What if you find a company offering no credit check payday loans?
Hence, if you come across a lender offering no credit check payday loans, or you find a credit broker who promises to arrange such a loan for you, you should be very wary indeed about doing business with that company. It may indicate that the company itself is operating illegally, i.e. it does not have authorisation from the FCA. It is a criminal offence to operate as a lender or credit broker in the UK without being authorised.
Alternatively, if the company is FCA authorised, but still claims to offer no credit check loans, it certainly indicates that the company is not too concerned about following the rules.
You can check whether any financial company is authorised by checking the Financial Services Register – there is a prominent link to this from the home page of the FCA’s website. Alternatively, you can phone the FCA’s Consumer Helpdesk, who will tell you whether the firm you are dealing with is indeed authorised.
Taking out a financial product from an unauthorised company is not recommended. If you choose to do so, then you would have no legal protection were things to go wrong, and you would be unable to refer a complaint about that company to the Financial Ombudsman Service. The Ombudsman is an independent body that can force authorised financial companies to pay compensation to customers that have been disadvantaged by the company’s failure to treat their customers fairly.