In 2015, almost a third of US citizens had credit scores lower than 601. That’s bad, and it hasn’t changed much in 2018.
Do you fall into such a category? If so, even bad credit loans may not provide the relief you need.
What you need urgently is a guaranteed approval loan for bad credit.
This detailed guide elaborates everything you need to know about it and whether it exists or not.
What Are Guaranteed Approval Loans for Bad Credit?
The higher interest attached to this type of loan is what makes it a guaranteed approval. How does this work?
Your poor credit score is a sign of higher risk of defaulting payment. Hence, lenders won’t easily give out loans. They’ll end up losing money if many borrowers default.
Therefore, to compensate for your low credit score, you pay higher interest. This makes lenders willing to give out guaranteed approval loans. They’ll still make money even if several borrowers default payment.
That’s what makes this type of personal loan with no credit check extremely likely.
How does this work out in real life?
Take an example where a lender has 100 customers. Due to the customers’ low credit scores, 20 customers default. The lender makes up for the loss through higher interest charges.
But that’s not all.
Another way lenders can cover their losses is by requiring collateral from borrowers. In case of a default, the lender takes over the collateral.
However, the higher interest and collateral aren’t just a guarantee to lenders.
Higher interest and collateral will make borrowers more prompt in making payments. You’ll have more incentive to repay to avoid accumulating higher interest. You also wouldn’t want your lender to take over your collateral.
Key Characteristics of Guaranteed Approval Bad Credit Loans
Unlike loans for people with good credit, installment loans for bad credit have high interest rates.
But that’s not the only characteristic of such loans.
You may also have tighter payment terms.
These two characteristics are simply due to the risk the creditor is taking. The lender is risking missed payments and defaults on the loans.
Unscrupulous lenders can take advantage of your credit status to charge more. Avoid such rogue lenders by only seeking the services of reliable creditors. You can still get reasonable interest rates from reputable creditors.
Which Types of Guaranteed Approval Bad Credit Loans Exist?
Guaranteed approval bad credit loans can be secured or unsecured.
The two types offer different degrees of risk.
1. Unsecured Loans
Unsecured guaranteed approval loans don’t require collateral. Often called payday loans no credit check, these are the highest risk loans the lenders are willing to give out.
Instead, you sign a contract with the lender. If you default, the lender can use that legal document for recovery. Third-party collectors can also intervene.
Since there’s no collateral, the risk is relatively higher. Therefore, you’ll pay higher interest.
In case you default, you might face ruthless third-party recovery agents.
However, this is a great option if you need money urgently. Especially if you don’t have an option.
2. Secured Loans
Here, you must provide collateral.
Such collateral is based on the amount you borrow. It can range from jewelry, a car, to even your house.
Other collateral options include debit or credit cards, and bank accounts. Lenders will use these to withdraw funds for loan repayment.
Such collateral makes this a secure option for lenders. In case you default, the creditor will seize your collateral. In turn, you benefit from a lower interest rate.
Ideal Candidates for Bad Credit Loans
The two main groups of people who need these loans include:
1. Borrowers with Credit Scores 579 and Lower
Approximately 62% of people in this category will likely become seriously delinquent. A major credit problem like bankruptcy can cause such a low credit score.
If you fall into this category, you’ll pay a fee or deposit when requesting a credit card.
Utilities will also require a fee. In fact, you’ll likely be rejected for credit, unless you look into no credit check loans.
Therefore, your only option would be friends, family or bad credit loans.
2. Borrowers with Credit Scores 580 to 669
Approximately 27% of people in this category will likely become seriously delinquent. This is a category of subprime borrowers, below the average credit score.
You should be able to qualify for quick loans and other high(er) interest loans, that aren’t in the payday loan realm.
Bad credit loans will give you a fair chance of accessing credit.
3. Borrowers with Credit Scores 670 or above
At this point, you are considered having “Fair” credit. It doesn’t mean that you can get the best rate on a mortgage, but you will be able to qualify for small personal loans and other products that have better interest rates.
People with bad credit are not all irresponsible.
You may assume everyone with bad credit is irresponsible. However, even responsible people can have bad credit. This can happen when you make costly mistakes.
One mistake that can ruin your credit score is using only one credit card for everything. This seems commendable, but it can drive up an important calculation called utilization. It’s the percentage of your available credit that’s being used.
A high utilization will negatively impact your credit score.
Another mistake that can ruin your credit score is an error on your credit report. You should check your credit report at least once a year to identify any errors.
Bad Credit Loans can Reverse Your Bad Credit Score
Guaranteed approval loans for bad credit can give you good credit scores.
Is that possible?
Yes. By making prompt payments on your loan, your credit score will gradually improve.
The lender should report payments to credit bureaus. It will show your creditworthiness, therefore, boosting your credit score.
What’s more, when your credit score improves, you’ll benefit from lower interest rates on your loans. You’ll also widen the range of lenders who can give you loans.
Besides, it will impact other areas of your financial life. You can reach a point where you no longer pay deposits for utilities. You may also be eligible for credit cards without deposit or fees.
The benefits don’t end there.
Improved credit scores make you eligible for higher loan amounts. Lenders can combine that with even more flexible payment terms.
This could be the path to your financial freedom.
Why People Need Loans for Bad Credit
Nearly 6 out of 10 US citizens lack enough savings to cover a $500 unplanned expense.
Such people may also not qualify for financial help from conventional sources.
That’s why guaranteed approval loans exist.
However, you shouldn’t just get a bad credit loan because you lack savings or have a poor credit score. Here are some of the best reasons to request for a loan:
i. Consolidate Your Debt
This is the most popular use of personal loans.
Combining other loans into one makes it manageable. You’ll have a fixed rate and fixed monthly payment. You can combine such debts as car loans, payday loans, and credit cards.
With this option, you can also get a lower, manageable monthly payment. The new, single loan can be structured with a longer repayment period.
Using such consolidation to pay off your credit cards can give you a lower rate. This will reduce the total amount of interest paid.
ii. Money for Moving Expenses
You may have a job opportunity that requires long-distance relocation. If you don’t have any other alternative, get a personal loan. It could be the stepping stone to financial independence.
You can use the money to:
- Move household belongings.
- Buy furniture.
- Lease a new home.
- Transport your car.
When planning on the amount to borrow, consider if your new income will pay it off. This way, you won’t borrow more than you can comfortably repay.
This is less of an emergency and more of an investment.
iii. Pay Funeral and Medical Bills
Apart from the emotional turmoil, funerals can drain your finances.
If a family member dies, you may be forced to take a loan. The amount will depend on the type of casket and other services you purchase. Therefore, avoid extravagant expenses.
You can also share the funeral costs among several family members.
Similarly, medical bills arise at unexpected times. Such medical services include orthodontic care, injury treatment or surgery. They can cost as much as or more than $5,000.
Besides, you’ll incur other related expenses like medical travel and after-care costs. That’s apart from the loss of income since you can’t work when sick.
Guaranteed approval loans will help you in these situations.
iv. Buy Equipment and Inventory for Your Business
A guaranteed approval bad credit loan will help your business if you have a poor credit score.
Getting a loan to start a new business is risky. However, getting a loan for an existing business can be a great investment. This is especially so if the inventory or equipment you need will multiply your revenue.
What’s more, the equipment you buy can serve as collateral.
Despite such benefits, don’t make an unnecessary purchase. Only buy equipment you need.
Getting the Right Lender is as Important as Selecting the Right Loan
Ultimately, the loan you get is only as good as the lender you choose. That’s why Bonsai Finance connects you with the very best lenders for your loan.
The best creditors will offer reasonable interest rates. You’ll also enjoy manageable repayment terms so that you can get back on your feet. There’s no reason why a loan should ruin your life.
Request your loan today.