Why you probably don’t need a no credit check payday loan

Elizabeth Barry 25 November 2015

looking for a loan

Your search doesn't need to be limited to the lenders who won't peek into your file.

If you have a few black marks on your file, no credit check payday loans sound like a no-brainer. You will be judged on your current financial position – your income, your employment, your assets – with your past discrepancies not having a bearing on the lender's decision. It's important to decide whether limiting your search to just these lenders is necessary. This is because most payday lenders will consider you for a loan even if you have bad credit.

If payday lenders accept bad credit borrowers, why do they check credit files?

Payday lenders go through your credit history as part of their commitment to be "responsible lenders". They need to be able to see how many open credit accounts you have, if you have recently taken out or defaulted on several loans, and other similar information.

Lenders have set criteria that they use to check if you will be able to repay your loan, and if your credit file and application does not meet their standards you will not be approved for your loan.

What lenders will check for on your credit file

While lenders look at your file in its entirety, there are a few key bits of information they will pay attention to:

  • Small amount credit contracts (SACC). If you are currently repaying one payday loan, have had two out in the last three months or are applying for a payday loan to repay an outstanding payday loan, the lender you're applying with will need to take further steps to prove you're not suffering financial hardship. Because of this, they will be looking for any SACCs listed on your credit file.
  • Defaults. While this may not necessarily affect your chances of approval, a lender may take note of defaulted loans on your credit file. The more recent the default and the higher the amount of defaults listed, the more of a chance this could affect your chances of being approved. Some lenders have restrictions as to how many defaults you can have on your file.
  • Credit applications. Any applications you make for loans, credit cards or any other form of credit will appear on your credit file as a credit enquiry. The more credit applications you make in a short space of time, the worse this looks to a lender. Lenders will be able to see whether the account has been opened or not, but making multiple applications makes it appear to a lender you are in a financially stressful situation and that it may be a risk lending to you.
  • Bankruptcies. If you are a current or discharged bankrupt lenders will look for this information on your file and have strict guidelines regarding this.

Borrowing while a current or discharged bankrupt

When might you want to consider a no credit check payday loan?

While bad credit won't stop you getting a payday loan, there are a few times when a lender offering "no credit checks" might be an option to consider:

  • If you've made several credit applications in a short space of time. This is a red flag to lenders and can also damage your credit score. As such, it may have contributed to you being rejected for a loan. If you meet the other criteria set by the lender you may not have to worry about multiple enquiries holding you back.
  • If you are a discharged or current bankrupt. Unless the lender specifically states they cannot lend to bankrupt borrowers, you may be in a better position to be approved for a short term loan if the lender doesn't require a credit check. Keep in mind you will need to meet the other eligibility criteria.
  • If you have compared your options and found it to be the right choice for you. This is the ideal reason to choose a lender. Use the comparison tables on finder.com.au to find a lender that's right for you and what you need.

No one type of loan is right for every borrower, so remember to compare all of your options so you apply for the loan that's going to best match what you want and need.

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