In this article:
If you don't have a bank account, you're not alone. A 2019 study from the Federal Deposit Insurance Corporation (FDIC) found that about 7.1 million American households are unbanked, a term that describes people who don't have a checking or savings account open at a bank or credit union.
Not having a bank account because you prefer to carry cash or because you have a not-so-great banking history can make it difficult to qualify for a loan. Find out why it's difficult to get a loan without a bank account and how you can open an account to meet your financial goals.
Why Is It Difficult to Get a Loan Without a Bank Account?
Lenders may ask for your bank history when you apply for a loan because it helps them verify your income and gives them an idea of whether you have the cash to keep up with payments.
Without bank history to verify your cash flow, lenders could find it difficult to assess the risk of lending to you. Ultimately, lenders want assurance that you'll repay a loan. Without statements to prove you can manage payments, it could be harder to determine if you're eligible.
Lenders that offer personal loans may also require that you have a bank account because that's where funds are deposited and that's where payments will come from.
Do All Lenders Require Bank Accounts?
Having a bank account isn't universally required to borrow money, but lenders who don't require it may be offering subprime loans. "Subprime" in this case describes loans that carry high interest rates and fees that are marketed to borrowers who may have a hard time repaying debt, such as those with a low income or bad credit. Certain loans and credit cards can be very helpful to these borrowers—such as government-backed mortgages and secured credit cards—but other types of subprime loans are best to avoid, and may not require a bank account.
Payday, pawnshop loans and title loans are three types of loans where a bank account may not be necessary. Here's how each works:
- Payday loans: Payday loans are short-term loans that allow you to borrow a small sum of money (usually $500 or less) until your next paycheck. Payday lenders may ask for a bank account, but sometimes a prepaid card account may be enough to qualify.
- Pawnshop loans: Pawnshop loans are loans where property of value—such as jewelry or machinery—is used as collateral for the amount you borrow. The lender might give you cash and will hold on to the item until you repay the loan.
- Title loans: Title loans are loans backed by a car without a lien. You can still drive your car around, but the lender holds the title to your car until you pay off the loan. If you miss payments, the lender may have the right to take your car.
However, payday, pawnshop and title loans are notoriously expensive. The annual percentage rate (APR) on these loans could be 400% or more, and the terms can be restrictive. For comparison, the average APR on a 24-month loan is 9.46%, according to Federal Reserve data for February 2021.
Because these loans cost so much and may be difficult to repay, it's almost always best to avoid them. If you can't pay the loan back promptly, fees can add up, leading to a debt trap that's hard to get out of.
Can You Build Credit Without a Bank Account?
Credit card applications may not always require bank information, but you'll have to make sure that the card offers payment options besides bank transfers if you don't have a bank account. Opening a card and making on-time payments could help you build positive credit history and better position you to qualify for future loans.
If having a limited or bad credit history is making it hard to qualify for a loan or an unsecured credit card, a secured card or credit-builder loan could help. Here's how both work:
Secured Credit Cards
Secured credit cards are cards backed by an upfront deposit (which typically becomes your credit limit). While many card issuers require that you make the deposit by bank transfer, others may let you pay it by money order or wire transfer. After making a certain number of on-time payments, you could get the deposit back and you might qualify for an unsecured card.
A credit-builder loan is similar to an installment loan where you make monthly payments, but its purpose is to help you establish a credit history. Loan funds are put into a savings account until you pay off the loan. At the end of the term, you get the loan funds in a lump sum, possibly with interest. Credit unions and community banks often offer credit-builder loans, and you may not be required to have an existing account with the bank to apply.
Depending on where you take out the credit-builder loan, you may be able to make payments from a prepaid card. A savings account is necessary for this loan because that's where your money is stashed, but it's typically set up during the application process if you're approved.
Consider Opening a Bank Account
Opening a bank account could make it easier to qualify for a loan, but getting an account could be easier said than done. If part of the reason you don't have a bank account is that you've had a lot of overdrafts or unpaid fees in the past and can't get approved for a new account, you may still have options.
Second-chance bank accounts offered by credit unions and banks are designed to give second chances to people who have less-than-perfect banking history. BBVA USA and PNC are two examples of financial institutions that offer second-chance accounts.
You may have options with online banks as well. Chime offers second-chance online bank accounts where your application isn't run through ChexSystems, which is essentially a background check system for bank accounts.
If you're hesitant to open a bank account because you're worried about fees and the minimum deposit required, there are options that have low fees and no minimum balance requirement. Since terms can vary widely from one account to the next, the best way to choose a bank account is by comparing features, fees and conditions across multiple institutions, including both traditional and online banks as well as credit unions.
How to Open a Bank Account
If you're wondering how to open a checking account, here's a general overview of the steps involved:
- Apply online or in person. Depending on the bank account issuer you choose, you may be able to apply online or at a branch. The application usually involves providing information such as your name, phone number, address and Social Security number or Individual Taxpayer Identification Number (ITIN).
- Submit supporting documents. To prove your identity and address, you may need to show multiple forms of identification.
- Provide money for the initial deposit. You will typically be required to fund the account with at least a minimum amount of cash.
- Receive your debit card. After setting up your account, a debit card comes in the mail, and you can use it to make purchases online and offline.
The Bottom Line
Banking history is one factor lenders may review to determine if you qualify for a loan, and having a bank account may be necessary if that's where funds will be deposited. If you think you might need a loan down the road and don't have a bank account, consider opening an account now so you can show a record of responsible banking history.
If you need a loan immediately and are considering a lender that doesn't require a bank account, be careful. Take a close look at the lender's interest rates, fees and term, and determine whether you'll be able to pay back the loan as agreed. If you only need to borrow a small amount to get you to your next paycheck, consider borrowing from friends or family and make opening a bank account a priority.
Opening a bank account and establishing some banking history before borrowing could help you qualify for a more competitive loan. If you have a bad banking history, a second-chance bank account could help you rebuild your banking history ahead of your next loan application.