Traditionally, getting a personal loan when you have no U.S. credit history can be difficult. Lenders in the United States use their own credit system to evaluate borrowers’ ability to pay back loans. Young adults and new immigrants are examples of people that haven’t developed a credit history yet. These aren’t people with bad credit – they just have no credit history. For new immigrants or foreign visitors, obtaining a loan without that U.S. credit history is challenging. But there are several options.
No Credit History
Typically, an individual with no credit can build credit in the United States with good habits and a little patience. For a recently immigrated family getting reestablished in a home or a student needing to lease a car, there isn’t always the necessary time to build a positive credit history.
No credit history results in a low credit score. But a low credit score isn’t always indicative of how responsible you are with credit. You may have a clean record but just haven’t had time to build up a strong history. Lenders can use other things to determine your likeliness of paying back a loan on time and their level of risk.
Criteria Beyond Credit Scores
There are other aspects of your life that lenders can evaluate besides your credit score. Certain lenders consider other factors to determine the likelihood that you’ll repay the loan as agreed. They may take into account your income and expenses, especially your disposable income (money left over after expenses). Your employment history and length of other bank accounts can also contribute to tell your story. In many cases, personal loans are unsecured. That means there is no collateral used to guarantee. However, some lenders will consider assets such as a car or other valuables to secure a loan.
Generally, lenders cannot use the following information when deciding whether to offer you credit or when deciding the rate or other terms of your credit:
- National origin
- Marital status
- Use of public assistance
Ways to Get a Loan with No U.S. Credit History
Most big banks aren’t interested in making personal loans to people with no U.S. credit history. Fortunately, there are several alternatives for obtaining a personal loan. Many immigrants with no U.S. credit history can find loans from $1,000 to $30,000 and annual percentage rates that range from 5.99% to 36%. In many cases and depending on the lender, funds can be disbursed in as little as one day.
Join a Credit Union
Credit Unions are nonprofit financial institutions. They tend to be less focused on profit and more focused on serving customers. That’s because credit union customers are also owners. To obtain a loan from a credit union, you typically must join. You may even need to make a small savings deposit.
Generally, it’s easier to get approved for a loan through a credit union. There tends to be more personal interaction. Thus, a credit union representative will consider you instead of just your credit profile. However, credit unions don’t always have the most competitive rates on personal loans. Find a credit union in your area.
Use a Cosigner
A cosigner is generally a person who signs the loan papers with you and agrees to be responsible for any unpaid debt. If you fail to repay the loan, the lender can go after the cosigner for the unpaid portion. Typically, cosigners are close friends or family members who trust you to pay back the entire loan.
In some unique cases, an employer may also be willing to act as a cosigner. In the case of H-1B visa holders, the employer is already sponsoring the visa. Thus, the employer has a vested interest in the success of their employee.
Borrow from a Friend or Family Member
Getting a personal loan from a friend or family member is perhaps the simplest way to get money. There are no credit scores or loan documents to sign. But not everyone has friends and family that are willing to loan cash. For those that do, personal loans from friends and family comes with risks. Misunderstandings or an inability to repay the loan could result in damaged relationships.
Use a Peer-to-Peer Lender
Peer-to-peer lending, also known as crowdlending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. The interest rates can be set by lenders who compete for the lowest rate on the reverse auction model or fixed by the intermediary company on the basis of an analysis of the borrower’s credit. As a result, rates for loans can often be lower than other options.
Get a Private Loan
There are numerous online lenders that offer private loans to people with poor credit or no credit. A private loan is any loan not offered by the federal government. Low overhead means these banks can provide more attractive rates, particularly to under served markets.
Stilt is focused on lending to immigrants and international students. They use other criteria to evaluate your credit and provide personal loans at competitive rates.
Payday Loans and Title Loans
Many people looking for a personal loan that have no credit history turn to payday loans or title loans. Both offer “fast cash” but can be costly decisions that aren’t good for your long-term financial health. For this reason, these companies are often referred to a predatory lenders.
These loan companies provide short-term loans at a very high cost. The loans come with high fees that can keep many borrowers trapped in a repayment cycle that never seems to end. Payday loan companies require that you commit to a repayment that includes a fee. If you can’t repay the loan when it comes due, you will be hit with additional fees and very high annual percentage rates (around 400%).
Title loan shops are all over the place. They require you to use your car as collateral for a short-term loan. Typically, you must own your car to qualify for this loan. Again, the annual percent rate and fees get extraordinarily high, especially if you’re late on the payment. It’s quick cash, but it’s also a quick way to lose your car.
Building a positive credit history and credit score are good long-term goals. If you need money today, there are many options that may work for you. Lenders evaluate anything that helps them feel more confident that you have the ability to pay off your loan – measurables that indicate whether you have a steady income or cash flow, reliable job, or commitment through collateral. By considering your comprehensive personal profile instead of treating you like your credit score, certain online lenders like Stilt may be able to provide the best solution for immigrant families.
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