If you have bad/no credit and you're in a tight spot, a guaranteed personal loan may be your lifebuoy. However, these loans aren't a feasible option as they appear at first glance. You most likely have heard of guaranteed approval personal loans, primarily advertised as a quick source to obtain extra money with simple processing and no credit check. However, while the term suggests guaranteed approval, most lenders at the very least provide funds only after deciding whether you can afford to pay off the loan on time.
What does a Guaranteed Approval Loan Mean?
Easy loans with guaranteed approval are promoted as a handy option to receive quick advances irrespective of your credit background. However, in reality, they are not truly guaranteed as minimum eligibility criteria still apply. The term "guaranteed loan" mainly refers to no-credit-check loans, such as payday or personal loans for bad credit. Although these loans are easy to get and are available online, they usually come with higher price tags.
Many consider guaranteed personal loans predatory practice targeting those with bad or no credit. Nevertheless, these loans may seem a good option when you are short on cash and looking for an alternative to traditional lending. Unlike short-term alternatives, such as cash loans, personal loans offer larger amounts (up to $10,000) and longer payback terms ranging from a few months to a few years.
Payday Loans May Also Come with Guaranteed Title
To secure a payday loan with guaranteed approval, you write a postdated check or provide an online authorization for automatic withdrawal from your bank account. The borrowed amount plus interest and fees are payable altogether upon your next paycheck. The loan amount usually ranges between $100 and $2500: dependent on some factors such as the borrower's creditworthiness, lenders' policies, and of course, the state of your residence. Commonly, guaranteed approval loans come with three digits APRs and short repayment terms, typically a couple of weeks, making it difficult to repay the entire amount. As a consequence, you are required to roll over outstanding sums into a new loan. Thus, if your funds are already stretched thin, a payday loan might easily entrap you into a debt cycle.
What to be Conscious of When Looking for Guaranteed Approval Personal Loans
High-Interest Rates: As discussed above, guaranteed loans accompany relatively high-interest rates. Thus, it is always worth calculating your budget before considering the guaranteed approval funding option.
Credit Score Downgrade: Most bad credit lenders don't report your credit records to credit rating agencies like TransUnion, Equifax, and Experian, meaning that on-time payments won't affect your credit. However, if you fail to repay your debt and get your account under collection, it may considerably reduce your credit score. Plus, a collection account will remain on your report for more than seven years and negatively affect your borrowing power.
Rollover: Bad credit lenders may offer to renew your loan if you cannot pay it back when it's due. A lender adds extra fees each time you prolong (rollover) a loan, increasing your out-of-pocket expenditures for borrowing the money.
Guaranteed Loans are re-borrowed Regularly: Rolling over a loan can dramatically lengthen the time it takes to repay it, often adding months or years to the initial repayment terms.