Most lenders will perform Credit Checks on their applicants. They believe that in the long run, it saves them money. That isn't always the case, though.
Credit checks cost lenders money, as much as £4 per check. That's why some lenders prefer not to do credit checks. Some will only perform affordability checks, saving them money and complying with lending rules set out by the Financial Conduct Authority.
How can lenders not performing a credit check make sense?
Credit registers such as Experian or Equifax charge around £4 per check to smaller lenders. Most mainstream lenders will only accept 1 in 15 applicants. That means that every time they approve an applicant, they have spent between £40-£60 on credit checks.
Here is the interesting part. Only around 1 in 20'ish borrowers default on repayments completely. That means that lenders can lend less than £800 - £1200 and still make money if they don't perform checks.
Is it responsible to lend to without checks?
There are checks, just not credit checks. All lenders must perform at least three separate types of checks.
1) Affordability Checks
2) ID Checks
3) Anti Money Laundering Checks
Checks to assess your current incomings and outgoings to ensure that you can afford any loan that will be offered. You need to have more money coming in each month from your work than you do going out on expenses. You will be asked to provide this information at the application stage.
2) ID checks are performed to confirm that lenders are dealing with the individual named in the application form. Please believe us when we say that you won't be able to fool this. ID checks match phone numbers, email addresses, real addresses, dates of birth, bank accounts and a whole lot more. If they don't match, the application will be declined. Before a loan is paid out, borrowers must confirm their consent by replying with a security code that is sent to them via a text message.
Anti Money Laundering Checks
3) Anti-money laundering checks are for lenders to worry about. Most lenders won't reveal their safeguards. They are closely guarded secrets that legitimate applicants won't notice.
If lenders don't perform these checks, and the borrower challenges the lawfulness of the contract in court. The contract can be annulled (cancelled).
Yes, no credit check loans are quite normal and happen every day.