Personal loans based on income and employment but not a credit score can help borrowers with weak credentials obtain quick funding for a vacation, Christmas gifts, or emergency cash.
Sometimes, young adults need a starting point. Other times, people need forgiveness for past mistakes that caused a black mark on their consumer report.
All finance companies use income and employment-based underwriting to help them make lending decisions. If you want them to ignore your credit score, you must shine in both areas.
Projected earnings determine whether you can repay the loan, and employment status indicates whether the wages will continue.
Income-Based Personal Loans
Many online lenders will base personal loan underwriting decisions on income rather than credit score so they can approve applications banks reject. Of course, you should expect to pay higher borrowing costs (interest charges and origination fees).
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Reasons
Two primary reasons suggest why a personal loan based on income only might make sense: you have no history, or your report contains adverse entries.
Bad Credit
An income-based personal loan might appeal to individuals with bad credit history and low FICO® and Vantage® scores. Instead of pulling a copy of your consumer report from Experian, Equifax, or Transunion, the lender might use alternative data sources and weigh affordability more heavily.
Bad credit loans with low monthly payments are easier to afford when the term is more prolonged. Borrowers are less likely to become delinquent when they have a surplus after retiring the periodic obligation.
No History
A personal loan based on income alone is often the only option for young adults just starting out. By definition, first-time borrowers have no consumer report or credit score for lenders to check.
Loans for eighteen-year-olds with no credit history are earnings-based by default. Therefore, you must show evidence of ample income and solid employment history – unless you are attending college.
The federal government is the one lender willing to approve loans to most people without credit or earnings history. Complete the FAFSA form and get a student loan based on future wages associated with a college degree.
Qualifications
The people most likely to qualify for a personal loan based on salary, not credit score, are those who can afford the projected monthly payment. Online lenders will calculate your Debt-To-Income (DTI) ratio during the underwriting process.
DTI = monthly debt service/monthly income
High DTI personal loan approvals are scarce when lenders ignore or downplay your credit score from FICO® or Vantage® because the ratio shows that the projected monthly payment will be difficult to afford.
Therefore, a low DTI is a critical qualifier for any earnings-based loan. It shows you have the financial capacity to take on additional debt without becoming delinquent.
Employment-Based Personal Loans
Personal loans based on employment, not credit score, will also cost more (interest rates and origination fees). Online lenders focus their underwriting on the source of income used to retire the monthly installments.
Self-Employment
Personal loans based on self-employment, not credit, are more challenging to obtain because online lenders cannot contact an independent third party to verify that you are still working and earning money.
No credit check loans for independent contractors and self-employed individuals rely on income-only underwriting, but lenders have nobody to call for verification. Therefore, you must provide other proof of past and future earnings.
- Tax returns from two previous years, including Schedule C
- Bank statements from the last three months showing regular deposits
Job Employment
Personal loans based on job employment, not credit, are easier to obtain because online lenders can verify through an independent third party (your employer) that you are actively working and earning money.
People with terrific job security have the best approval odds because the lender can count on your income continuing through the end of the loan term.
If you ask a lender to ignore a crucial underwriting tool (credit score), you must help them verify your job status with your employer. Have these documents ready in advance.
- Monthly bank statements
- Pay stubs dating back three months or more
- A signed letter from your employer
Types of Income & Employment-Based Loans
Personal loans based on income and employment only speak to the underwriting process used by the lender to decide whether to approve or decline an application. When asked to ignore your credit score, the type of contract plays a more prominent role in their determination.
- Shorter repayment terms pose lower default risks
- Smaller principal amounts help minimize losses
- Secured contracts allow the lender to repossess the collateral
Auto Loans
Employment and income-based auto loans are often easier to obtain without a credit score because the lenders hold the title to a valuable asset. The legal right to repossess the collateral minimizes losses, allowing them to approve more applicants.
For example, car loans are secured installment contracts. The lender holds the title until the driver retires the balance and can repossess the auto in the event of default to offset their losses.
Young adults with no credit history and older drivers with adverse payment records often find this is their sole option to finance an auto.
Installment Loans
Employment and income-based installment loans allow you to quickly get small sums of cash, often without a credit check. Due to the high borrowing costs, they are best suited to emergencies, such as medical bills, car repair, and other urgent needs.
A lack of recent installment loan information could be why your credit score is too low. If so, taking out and repaying an installment loan on time should improve your score in the future, allowing you to borrow money at better rates.
Remember that installment loans have fixed monthly payments over a predefined period, and many contract types with lower borrowing costs fit the broad definition.
- Mortgages
- Personal loans
- Auto financing (loans and leasing)
Cash Advances
Payday cash advances are employment and income-based loans by definition and feature short repayment terms: one or two weeks. These lenders rarely pull a copy of your consumer report or consider your credit score when making underwriting decisions.
Instead, lenders rely on a post-dated check or written permission to debit your bank account for the amount due on the day your paycheck auto-deposits. To qualify, you must provide employment and earnings verification.
Beware of the high origination fees associated with payday cash advances, which average $15 for every $100 borrowed over one to two weeks. The charges add up quickly if you cannot repay the balance and roll over the loan.
Payday loan debt consolidation could be impossible without a good credit score. So make sure you have enough spare money in your following paycheck to repay the obligation immediately while covering your regular bills simultaneously.
