Search for a loan online and you will soon find offers that say "no credit check" or "instant approval". For anyone who has been turned down before, the appeal is easy to understand. But these phrases should make you more cautious, not less.
In this guide, V5 Solutions explains what credit checks are for, how soft and hard searches differ, and how to tell a legitimate lender from one you should steer clear of.
Why Do Lenders Carry Out Credit Checks?
A credit check shows a lender how you have managed borrowing in the past. Your credit file records things like existing loans and cards, missed payments, defaults and court judgments. Combined with details of your income and spending, it gives the lender a picture of whether new credit is likely to be manageable.
For FCA-authorised lenders, this step is not optional. Regulations require them to carry out a creditworthiness assessment, which includes confirming that the repayments are affordable for you, before they lend. Leaving it out would put the borrower at risk and break the lender's obligations.
Is There Such a Thing as a Genuine No Credit Check Loan?
From an authorised lender, not really. Some firms use the phrase loosely to mean that a quote or eligibility check can be done without a hard search. That is a useful feature, but it is very different from having no checks, and a full assessment still takes place before any money is released.
If a lender truly does not look at your circumstances, ask yourself why. Perhaps it is not authorised, perhaps it does not care whether you can repay, or perhaps there is no real loan on offer at all.
How Soft and Hard Searches Affect Your Credit File
Soft searches
A soft search lets a lender see enough of your credit file to indicate your chances of being accepted. It is recorded on your file, but it has no impact on your credit score, so soft-search quote tools are a way to compare options without affecting your score.
Hard searches
A hard search is recorded when you submit a full application. It remains on your file for a period and is visible to other lenders. One or two are perfectly normal, but many applications in quick succession can suggest financial pressure and may make it harder to get credit.
How Can You Spot an Unauthorised Lender?
Work through this checklist before you share any personal or bank details:
- Is the firm listed on the FCA Register, with contact details that match its website?
- Is it absent from the FCA Warning List of firms to avoid?
- Has it asked for an upfront fee, or for payment in vouchers, gift cards or cryptocurrency?
- Is it claiming that approval is certain or that your credit history does not matter?
- Did it contact you first, through a cold call, text or social media message?
- Is it rushing you, or reluctant to give you the full terms in writing?
A "no" to either of the first two questions, or a "yes" to any of the last four, is a reason to stop. Borrowing from an unauthorised lender leaves you without the protections that regulated borrowers have, including the right to take a complaint to the Financial Ombudsman Service if something goes wrong.
How V5 Solutions Assesses Applications
We provide loans secured on your vehicle, and we look beyond a credit score. Our decision is based on your vehicle's value and the affordability of the repayments, and applicants with bad credit are considered. A soft search produces a personalised quote without affecting your credit score.
If you go ahead, an underwriter reviews your bank statements and speaks to you by phone to make sure the repayments fit your budget. You can see the full process on our how logbook loans work page, and common questions are answered in our logbook loan FAQ.
Secured borrowing is a significant decision and can be more expensive than other types of credit. Our guide on what to consider before a logbook loan covers the key points. This article is general information, not financial advice. If you are already struggling with debt, free, impartial help is available from National Debtline or Citizens Advice before taking on anything new.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
