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What Is an NINJA Loan?
How a NINJA Loan Works
The risk of loaning NINJA
NINJA Loans and the Financial Crisis
FAQs
The Bottom Line

Personal Finance Loans

NINJA Loan: History, Definition, and Current Loan Availability
By Julia Kagan
Updated August 11 2022
Reviewed by Julius Mansa
What is a NINJA Loan?

An NINJA loan is an informal term used to describe an unrequited loan granted to a borrower with little or no effort by the lender to verify the borrower’s capacity to pay. It is a reference to “no income not working, no income, as well as no asset.” Whereas most lenders require loan applicants to show proof of a stable stream of income or sufficient collateral however, NINJA loans do not require any proof of income or collateral. NINJA loan doesn’t require that verification procedure.

NINJA loans were more common before the financial meltdown of 2008. In the aftermath of the financial crisis, government officials from the U.S. government issued new regulations to improve standard lending practices in the credit market. This included tightening the requirements to grant loans. At this point, NINJA loans are rare, if not extinct.
Key Takeaways:

The term NINJA (no income or job and no assets) loan is a term used to describe the loan granted to a person who may not be able to pay back the loan.
A NINJA loan is granted without a verification of the borrower’s assets.
NINJA loans were mostly gone after the U.S. government issued new guidelines to improve lending practices after the 2008 financial crisis.
Certain NINJA loans have attractively low interest rates, which increase with time.
They were popular because they could be accessed quickly and without the borrower needing to submit the necessary documentation.

What is a NINJA loan works

Financial institutions that offer NINJA loans base their decision on a borrower’s credit score without verification that assets are earned or income such as income tax returns and pay stubs. bank and brokerage statements. The borrower must have a credit score that is above a certain threshold to be eligible. Because NINJA loans are usually offered by subprime lenders, their credit score requirements might be less than the requirements of mainstream lenders, like large banks.

NINJA loans are made with various terms. Some may offer an attractively low interest rate at first, which grows in time. Borrowers are required to repay the debt within the timeframe they have set. In the event of non-payment, it could lead the lender to initiate legal measures to recover the debt, which could result in a decrease in the borrower’s credit score and the ability to get other loans at a later date.
Risks associated with NINJA Loans

Because NINJA loans need so little paperwork compared, for example the traditional home mortgage or business loans the application can be swiftly processed. Their quick processing makes them appealing to some borrowers, particularly those who lack the customary documentation or don’t wish to submit it.

The loans could, however, pose a risk for both the lender and the borrower. Since NINJA loans do not require proof that they are collateral-backed, they cannot be secured by any assets a lender could seize if the borrower fails to pay the loan.

NINJA loans can be dangerous for the borrower in a way that is not restricted by the traditional conservative banking underwriting procedures that tend to protect both parties from problems. Borrowers may be encouraged to take out larger loans that they would reasonably anticipate repaying especially if they concentrate on a low interest rate, which will increase in the future.

NINJA loans are extremely risky for lenders and borrowers alike.
NINJA Loans and the Financial Crisis

After a high level of loan defaults led to the 2008 financial crisis as well as an ebb in real estate values in many parts of the country, the federal government imposed stricter rules on lenders, making loans more closely controlled than before and mortgage loans having the most impact.1

The legislation of 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act established new standards for lending as well as loan applications. The new rules mostly took eliminate NINJA loans which required lenders to gather more complete details about potential borrowers such as their credit scores, as well as evidence of their employment as well as other sources of income.

The amplification of NINJA loans was a major factor in the 2007 and 2008 Financial Crisis and housing bubble. One research paper estimated that such loans contributed to $100 billion, which is 20% of the total losses, as reported during the crisis.2
Do NINJA Loans Still Available?

NINJA loans are largely no longer within the United States due to tighter lending standards put in place after the 2008-09 financial crisis.
Why Did Banks Provide NINJA loans?

Prior to the financial crisis, banks began to profit from writing home loans. NINJA loans were originally designed to help borrowers who were having difficulty in obtaining the necessary documents to verify their income and assets, for example, previous tax returns as they got their income from sources that aren’t traditional and where documentation is unavailable like tips or personal businesses. These lenders typically extend loans to borrowers based purely on their credit score, without any further documentation of the borrower’s ability to make payments.
What Are Other Terms that are used for NINJA Loans?

NINJA loans (no source of income (no job, not having assets) are a type of no documentation or low (low/no doc) loan, also known as “liar loans.”
The Bottom Line

Popular in the early- through mid-2000s NINJA loans (which required the submission of no documents to show an income, job, or assets) were partly responsible for the rise in the housing market and its it’s subsequent collapse that coincided with financial crisis of 2008-09 and the ensuing Great Recession. Since that time new regulations have eliminated this type of lending.
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