How to Get a Loan With No Credit

Borrowing money is a way of life these days. While many would argue that it shouldn’t be, the truth of that matter is that at some point just about everyone needs to receive a little extra help to get back on their feet, whether they are dealing with layoffs, getting hassled by creditors, or are in need of medical assistance.

The hardest thing for many people is getting a loan with no credit. The paradox, or catch-22, is that a person needs credit history, or proof that he can pay off a loan, in order to get approval from a lender, but without having borrowed in the past, how can one prove such a thing? A person can’t seem to get a loan without having borrowed, but this same person cannot borrow without having first been the recipient of a loan.

It seems confusing to say the least, but getting a no credit loan is not impossible if someone can follow the other rules that determine who would be a good candidate for lender approval.

Getting a No Credit Loan

In order to secure a loan, whether it is a VA mortgage with no money down, an auto loan, or fast cash from a payday lender, one should understand the 5 C’s of credit, which are:

  1. Character
  2. Capacity
  3. Capital
  4. Collateral
  5. Conditions.

If a person is known to lack the character to honor a contract, the rest of the Cs don’t matter to a lender, but if a person has character, it won’t guarantee him a loan, especially with no credit.

In order to secure a loan, one needs capacity, which is money coming in. If a $5,000 loan is going to be paid off in two years, the borrower will have to show that he has at least $300 in disposable income each month to make the payment. And if that income was to go away unexpectedly, he’d need to show that he had the capital in his net worth, which can be found on a balance sheet.

Collateral (something he could sell) or cash is always a strong way to prove one is a worthy loan candidate, but this may not hold much weight if the conditions are not right, such as if the borrower is unemployed and the economy is only getting worse.

Join a Credit Union

One way beyond satisfying the above conditions to obtaining a loan with no credit is to join a local credit union. Credit unions are built more in line to serve the people of the bank rather than to simply focus on the bottom line. While they will not take unnecessary risks, they will offer advice on how to build credit, and they can offer loans based on one’s collateral and capacity.

Obtaining credit when one has none does not have to be hard. By following the formula of satisfying the 5 Cs, credit will be easy to find.