As young high schoolers graduate and make their way off to college, or a trade school, or their first ‘real’ job, many of the realities of adulthood will become apparent to them for the first time. They start shopping for their own living space; they take out their first credit card; they now have to purchase their own car. Liberating as these experiences are, they are expensive. It prompts many to seek options for first-time loans with no credit.
It’s not only young adults who need access to money now. As the divide between the inflation rate and the average wage increase continues to grow in America, many people are starting to realize that they can’t even afford to live without going into debt. While this is particularly true of young adults, even older, established workers have been struggling. They’re not struggling to get ahead – they’re struggling to stay afloat.
For those without any kind of established credit, this can be an uphill battle. Credit has grown to such a high level of importance in American commerce and financing that it’s second only to a social security number. A credit score is used for everything from credit cards applications, to mortgage underwriting, to apartment renting, to car loans. If you don’t have one, it may seem like you’ve been completely written off by the financial sector.
Despite this, there are still plenty of opportunities to get funds when you need them. The trick is to educate yourself beforehand about what you can expect. In this guide, we’ll review three crucial things you need to know and consider before you shop for your very first loan.
Don’t Expect to Get the Best Rates
While lenders want to be competitive when you shop for a no credit loan, you should not expect that you’re going to get the best of everything. Lenders often give their best terms, including interest rates and loan limits, to those with excellent credit scores.
People with high scores have proven themselves to be responsible, trustworthy people. They’ve paid their bills on time, had access to multiple lines of credit, and have kept their accounts in good standing for many years. In short – they’ve proven they can handle credit.
That’s not to say that you can’t handle credit; you just haven’t been able to prove it yet. Humans, by nature, tend to avoid risk where they can, and lenders are no different. No credit history, while it doesn’t say anything bad about you, doesn’t say anything good either. You’re an unknown. And that means you’re a risk.
So understand – lenders will still work with you, despite your lack of credit history. They’ll just be cautious about doing so. You probably won’t receive a very high loan limit, and you’ll probably pay a higher rate of interest. It’s how lenders will protect themselves against loss.
A No Credit Loan Will Give You the Opportunity to Build Credit
While credit cards have always been the default option that people use when they need to start establishing credit, they are not the only available option. A loan can be just as, if not more, effective as a credit card when you’re trying to establish credit.
Your credit score is compiled with five factors in mind: your financial history of payments, your utilization of credit, your credit history, your credit diversity, and the number of recently opened accounts. Receiving approval for a first-time loan will address all of these factors at once.
The key to capitalizing on this opportunity is to make your minimum loan repayments on time each month. Payment history has the largest impact on your credit score, 30% total, so it’s critical that you make your payments.
One critical advantage that a loan has over a credit card for building credit is that it is much easier to manage. Credit cards charge interest against any outstanding balance after the billing cycle is over. This means that even if you’ve made your minimum payment on a card, you can still accumulate more debt. It can make it easy to accumulate an amount you can’t repay.
A credit card also has a pre-established limit for what you can charge each month. If you go over 30% of your limit, it will start to negatively affect your score.
With a loan, the interest is calculated up front, and your monthly payment will never change. You also don’t have to worry about going over a credit limit, since loans limits do not count toward credit utilization.
For all of these reasons, loans can be a great way to start establishing your credit, while getting the money you need to subsidize your household income, pay off some of your student debt, afford furniture for your home, or any other number of uses.
It Requires a Lot of Research to Find the Best Deal
When you shop for a car, you don’t buy the first thing you test drive. When you shop for a house, you don’t make an offer on the first one you visit. Smart shoppers explore their options before they commit to a large investment, and loans are no different.
Shopping for a loan takes extensive research, with hours of investment to find the best deal. First, you’ll have to find lenders willing to work with no credit history, which can be a difficult task in and of itself. Then you’ll have to take the time to compare their interest rates, loan limits, loan repayment timelines, and time it takes to receive your money.
This can be difficult, especially for first-time loan seekers. Since you’re reading this blog, that’s a good indicator that you’re trying to educate yourself beforehand. That’s the best thing you can do, but there’s no substitute for experience, especially with loans. Many first time shoppers don’t do any research at all. It leaves them with a bad deal that leaves their credit in a complete wreck.
Fortunately, there are options available to help you save time, learn about the lending process, and find a great loan, all in one sitting. The Loans Now team has had years working with no credit history loans, and we know how to find the best deal possible.
Don’t risk getting saddled with a bad deal for your first loan. This is your chance to start establishing the credit that you’ll need in the future, and it’s critical that you make a great start. Use Loans Now’s expertise to find a great no credit history loan that you can use to start building a great financial future for yourself today.