For many young adults and those new to borrowing, getting approved for a first time personal loan with no credit history can seem like an impossible task. Traditional lenders often rely heavily on credit scores and reports to assess risk, leaving those with a blank credit slate at a disadvantage. However, there are options available for borrowers seeking their first personal loan without established credit.
This comprehensive guide will explore everything you need to know about personal loans for first-time borrowers, including:
When you apply for a personal loan, lenders assess your creditworthiness to determine the risk of lending to you. With no credit history, you're essentially a blank slate - lenders have no way to predict how likely you are to repay based on past borrowing behavior.
According to a study by the Consumer Financial Protection Bureau, about 26 million American adults are "credit invisible," meaning they have no credit history with the major credit bureaus. This can make it extremely difficult to qualify for traditional loans and credit cards.
Some of the key reasons lenders are hesitant to approve loans for those with no credit include:
However, having no credit isn't necessarily the same as having bad credit. You may simply be new to borrowing and haven't had the chance to establish a credit history yet. The good news is there are lenders who specialize in working with first-time borrowers.
While approval may be more challenging, there are several lenders that offer personal loans specifically for those with no credit history. Here are some top options to consider:
| Lender | Loan Amounts | APR Range | Minimum Credit Score |
|---|---|---|---|
| Upstart | $1,000 - $50,000 | 6.5% - 35.99% | No minimum |
| Avant | $2,000 - $35,000 | 9.95% - 35.99% | 580 |
| OneMain Financial | $1,500 - $20,000 | 18% - 35.99% | No minimum |
| Oportun | $300 - $10,000 | 20% - 67% | No minimum |
Upstart is an online lender that uses artificial intelligence and machine learning to assess borrowers beyond just credit scores. They consider factors like education, area of study, and job history. This makes them a good option for recent graduates and young professionals with minimal credit history.
While Avant does have a minimum credit score requirement, they're known to be more lenient with credit history length. They offer quick funding and a wide range of loan amounts, making them suitable for various needs.
OneMain Financial specializes in lending to borrowers with less-than-perfect credit or limited credit history. They offer both unsecured and secured personal loans, with the secured option potentially offering better rates for those with no credit.
Oportun focuses on serving borrowers with little to no credit history, particularly in underserved communities. They use alternative data to assess creditworthiness and offer smaller loan amounts that can be good for building credit.
While getting approved for a first time personal loan with no credit history can be challenging, there are steps you can take to improve your odds:
Having a co-signer with established credit can significantly boost your chances of approval. The co-signer agrees to take responsibility for the loan if you can't repay, reducing the lender's risk.
Some lenders offer secured personal loans where you put up an asset (like a car or savings account) as collateral. This can make approval easier and potentially get you better rates.
A steady income and stable employment history can help demonstrate your ability to repay the loan. Be prepared to provide pay stubs, tax returns, and employment verification.
Requesting a smaller loan amount may be less risky for lenders and easier to get approved. You can always apply for larger loans in the future as you build credit.
Some lenders allow you to submit a letter explaining why you have no credit history and how you plan to use and repay the loan responsibly. This can help humanize your application.
If you're having trouble getting approved for a traditional personal loan, consider these alternatives:
Secured credit cards require a cash deposit that serves as your credit limit. They're easier to get approved for and can help you start building credit.
These loans are designed specifically to help build credit. The money you borrow is held in a savings account while you make payments, then released to you at the end of the term.
Platforms like Prosper and LendingClub connect borrowers directly with individual lenders. Some may be more willing to work with those who have no credit.
Credit unions often have more flexible lending criteria and may be more willing to work with members who have no credit history.
Once you've secured your first personal loan, it's crucial to use it responsibly to start building a positive credit history. Here are some tips:
According to a report from Experian, it typically takes 3-6 months of credit activity before you'll have enough history to generate a credit score. Consistently managing your first loan responsibly during this period can help establish a strong foundation for future borrowing.