If you browse the Internet or watch TV, then there is a good chance that you have come across an ad for a guaranteed loan approval program at some time or another. Many auto and personal lenders use this kind of promotional loan to increase their sales margins. Although a guaranteed loan approval may sound like a fantastic deal, especially if your credit score is low, sadly these types of loans are not as good of a deal as you likely hoped for. The truth is that many people think that guaranteed loan approval programs are a straight out scam. Here are several things you need to be aware of when looking into this type of loan program so that you can make an educated decision about taking one out.
Are Meant to Appeal to People With Bad Credit
The whole reason these types of loans exist is for lenders to attract those that have little to no other options. If you have gone through bankruptcy or foreclosure or another serious credit issue, then you likely have the idea that not many lenders will approve you for a loan. This is what lenders who offer a Guaranteed Approval Loan programs are banking on, as they know that those who do not have many credit options will be willing to sign for a loan with poor interest rates and terms if it means that they will be approved. People that have bad credit and see the ads for a guaranteed loan program will often head to these lenders hopeful that they can walk away with cash. These lenders love this because it gives them more opportunities to hand out loans to those who otherwise do not have the credit rating to be approved. However, sadly in the majority of cases this type of loan is not in the best interest of borrowers who have bad credit.
The High-Interest Rates
One of the most important components of any loan is the interest rate because it determines how much you will have to fork over to pay it off. With guaranteed approval loans, the interest rates are typically extremely high, as those companies that lend out this type of loan know that people with bad credit will still sign for them. In fact, the rate that you receive for a Guaranteed Approval Loan can often be two to three times the amount that of a conventional loan rate. Although you might think that those lenders that give these types of loans out are attempting to help those who have no other options, this is not the case. The truth is, all they are doing is compounding the problems that those with bad credit have by giving out an unaffordable interest rate on their loan. In all likelihood, your payment will probably be much higher than what you can actually afford to pay back and can even cause a worse credit problem than what you are already in.
“Guaranteed Approval”
Stating that a loan is guaranteed to be approved is pretty idealistic. The reality is that there are no means of a legitimate lending company securing a loan to everyone that wants one no matter their credit score. Some people are just too risky to lend to. Due to this, if you have a credit score that isn’t just low, but completely in the tanker, you may not be approved for a “guaranteed approval” loan no matter what the ads say. This is especially the case for those who have just declared bankruptcy, as not many lenders would be willing to hand out a recently reported bankruptcy no matter if the loanis guaranteed or not. Another way that someone may not be approved for this loan is if the lender knows that there is absolutely no way that you can repay your debt. If you do not have a steady paycheck coming in, then a Guaranteed Loan Approval lender will not approve you for a loan because they know that it will be a huge hassle to get their money back, and more likely than not your bill will get sent to a collection agency. Guaranteed Approval lenders want to know that they have at least a decent chance of being repaid.