Banks and other financial institutions have certain eligibility criteria to grant different types of loans. One of these criteria is the CIBIL (Credit Information Bureau Limited) score or, as it is more commonly known as the credit score. This score is an indicator of an individual’s ability to repay a loan and allows the lending institutions to assess whether they should approve a loan application immediately, agree to it subject to certain terms (security or guarantee, for instance) or reject it outright. In normal circumstances, individuals with bad credit scores are unable to get a loan.
This is where no credit check loans come in. These loans are meant for individuals who have a bad credit history or for those who do not want the lender to check their CIBIL score when they need some finance.
These loans can be availed at comparatively higher interest rates for a short period of time. These loans are usually given against your credit card limit, with a guarantor vouching for the applicant or against a security. Banks in India usually do not refer to these loans as No Credit Check Loans, instead they call them by their specific names such as loan against credit card limit, education loan or secured loan.
Loans against your credit card limit are near-instantaneous loans that you get on the basis of the balance of your credit card. Since banks give these loans to people who have had a good history of credit card bill repayment, they usually don’t do a detailed credit check, if at all, while giving these loans. Another reason is that you have already been approved for a credit card limit and all you are doing is using your balance – just that it is now in the form of a loan and not as a credit card purchase.
Education loans usually do not require a credit check if the student has got admission in a repeated institution and there is a reliable guarantor who vouches for the applicant’s ability to repay the loan once they pass out of college. Since students usually do not have an income when they apply for the loan, they do not have any credit history and hence no credit score.
Secured loans are loans that are taken after mortgaging your asset or your property. The availed loan amount is based on the value of the said asset/property. Failure to repay this loan leads to the loss of the asset or property as the bank sells it off to get their money back. This, however, is usually a last and banks or lending institutions give ample time and opportunity to the borrower to repay the loan. Common types of secured loans that do not need or need cursory credit checks are car loans, loan against property, secured loans for business, etc.