Guaranteed Personal Loans
For those eager to secure extra cash to stretch their monthly budget, predatory lenders will often promote “guaranteed personal loans.” Like other personal loans, they can be used for anything a client may need. The idea is that borrowers are “guaranteed” to be approved, regardless of credit score or history, and without collateral.
The downside is that these products have ridiculous rates and penalties if they are not repaid on time. Here, we’ll go through the details and show you what to watch out for, and what other options are available even if your credit is less than ideal.
- What are Guaranteed Personal Loans?
- What are the requirements?
- Benefits and drawbacks (pros and cons)
- What are the alternatives?
- How to apply for a better loan (including calculator)
What Are Guaranteed Personal Loans?
Guaranteed personal loans are often synonymous with payday loans or cash advances. They can be sourced at designated check-cashing storefronts, online, and even at some banks.
For this type of loan, a borrower provides bank account and employment info and gets a direct deposit within minutes. Amounts typically range from $350-$1,500. The repayment terms are very short (usually two weeks to a month) and have fees ranging from $10-$30 per $100 borrowed.
While many are aware of the availability of these products through TV commercials or ads online, they may not be aware of how bad they are for consumers. The reason they are marketed so aggressively is because of the tremendous upside for the lenders.
It’s important to note that guaranteed personal loans go by other names as well, depending on how they are being marketed. While their features may vary slightly, they offer similar rates and terms. Here are some of the most common names for these products:
- Cash advance, payday advance, or paycheck advance
- Payday loan
- Fast cash
- Deferred deposit
- Low credit loan*
*This name may refer to a guaranteed product or could be a more general term for a personal loan designed for low credit borrowers.
What Are the Requirements?
While most products require a range of personal information, proof of employment, bank account details, and credit history, guaranteed loans usually only require a pay stub or two and access to the borrower’s account to deposit funds.
Benefits and Drawbacks
There are three key features that make these products so appealing.
|Just about any employed person can qualify, regardless of credit score or history||Balance must be paid off all at once|
|They do not require collateral||Fees typically range from $10-$30 per $100 borrowed, much higher than average|
|Funds are available immediately||Many require continuous payment authorization, allowing access to your account to deduct funds and fees if you fall behind|
|May be difficult to repay on time, forcing loan to roll forward, paying the fee all over again|
|The fees can easily add up to a 300%-1000% APR if it isn’t repaid and rolls forward|
Here is an example of how easily things can spin out of control.
Cycle of Debt
If a borrower requests a guaranteed loan of $400 and is charged a fee of $60 (15%), it will cost $460 if repaid within a two week period. If he or she falls behind, it will roll forward and the fee will be charged again each time. This cycle may, and often does, continue indefinitely. The 15% fee will cost $720 alone within a half a year, which means the borrower would need to repay a total of $1,120 when the initial loan amount is included.
|$400 Guaranteed Loan|
|12th (1/2 year)||$720|
What Are the Alternatives?
The Federal Trade Commission explicitly discourages this type of borrowing and suggests consumers do whatever they can to avoid it. While quick access to funds for an emergency bill may sound appealing, take a moment to consider a few alternatives.
Request assistance from a local place of worship, especially if you are a member.
Shop for a low-cost credit card. Even if rates end up being higher than you had hoped, you’ll have more time to repay and a straightforward limit on how much can be charged. You can also elect not to have the bill automatically deducted, which means your bank account won’t be overdrawn if you fall behind.
- Look for small loans elsewhere, like from a credit union or reputable online lender. While there may be a little more legwork, you’ll find better terms and lower fees. Even though they don’t give access to cash immediately, they can often be finalized within 24 hours.
How to Apply
Just because you have bad credit doesn’t mean you can’t qualify for a decent loan. There are reputable lenders who specialize in approving customers with a less than ideal score.
Use a loan calculator to see how much you could get. Once you’ve done that, compare rates to get pre-approved before you complete an application.
If you’re still not sure which direction to take, here are some frequently asked questions.
Q: What happens if I can’t repay a guaranteed personal loan?
A: If the lender has access to your account (which is common), they will likely deduct whatever funds are required to repay. If you cancel the account or deny access, it will go to collections, which means you will be called relentlessly until the amount is repaid or settled. For many, it’s simply easier to roll the loan forward, which means another steep fee each time.
Q: Can I get denied for these types of loans?
A: If you are not employed or have a history of not being able to repay, you may not be approved.
Q: Can it negatively impact my credit score?
A: Not unless you fall behind on payments.
For those who find themselves desperately trying to cover a surprise bill or last-minute expense, guaranteed personal loans provide quick access to cash for just about anyone. Unfortunately, the high fees and penalties offset the benefit for most people, and they should only be considered as a last resort, if at all.