The first time you come across the term guaranteed loans, it gives the impression that they are some type of loans with a zero chance of rejection. Undoubtedly, this seems too good to be true, but when this term is commonly used by various lenders, even skeptics might fall for what is essentially a marketing ploy aimed at attracting subprime borrowers. This is exactly what happened to me a few months ago when I applied for a guaranteed loan of £1,200, assuming there was no probability of being refused. Contrary to my expectations, I received an email from my lender informing me that my application had been turned down.

I was addled and furious as it seemed to contradict the notion of guaranteed approval. When I confronted my lender, I was upset that I had misunderstood the term. The guarantee they explained did not refer to guaranteed approval, but to the fact that borrowers with all types of credit histories were welcome to apply. In hindsight, I realize that the blame was shifted to my ignorance, but lenders bur the boundaries between promise and possibility.

The bottom line is that there are no such loans as guaranteed loans. No lender could ever be in a position to guarantee approval without perusal of your credit report and income sources. In fact, those who run soft inquiries even have to make the lending decision based on your income sources. When you formally put in a loan application, your lender will run an affordability check, which includes an analysis of your credit report and income sources. If it is found that you would not be able to cut it, your application will be declined.

Guaranteed loans should not be confused with guarantor loans

Although everywhere you come across more or less the same terminology, the context in which they are used might vary by lender. For instance, some lenders establish a distinction between poor credit and very poor credit loans, while others simply regard them as loans with bad credit or loans for subprime borrowers. Likewise, some lenders have subcategorized personal loans into various loans, such as wedding loans, bad credit loans, holiday loans, and emergency loans, while others only sell personal loans regardless of size, credit rating, and personal purpose.

But no lender intermixes guaranteed loans and guarantor loans. The terminology guaranteed loans implies that applications from borrowers with all types of credit scores are accepted; however, approval is subject to affordability checks. On the other hand, guarantor loans are those that require you to arrange a guarantor with a good credit history because your credit history is abysmal to accept your application.

When applying for a guarantor loan, your guarantor will also be involved in a loan agreement. The role of a guarantor is to promise to a lender by signing the agreement that they will pay off the loan amount if you fail to discharge it on time. However, the consequences of non-payment will also affect the guarantor’s credit score, even though they settle in full when you refuse.

On the other hand, guaranteed loans only emphasise acceptance. It does not insinuate that your application will be approved. A lender will carefully check your credit score and income sources to determine if your budget has the wiggle room to pay off your debt.

Guaranteed loans are generally aimed at subprime borrowers

Guaranteed loans are aimed at subprime borrowers who struggle to be accepted elsewhere. Here, the motive is to invite as many applications as possible so borrowers do not struggle to meet their emergency expenses. But the approval is made only after a perusal of your credit history and income sources.

There is no doubt that a lender would have to check your current income sources to determine if you can repay the debt. It is enjoined that you carefully fill in your income details because they will be considered to check your affordability. In addition, your lender will ask for a bank statement and pay slips for the previous three months to verify them. However, if the amount is so small, they usually make the decision based on the income details you furnish.

False information will lead to the miscalculation of your repayment capacity. As a result, you will end up borrowing more than you can afford to pay back. Once you fall behind on payments, you will end up rolling it over. This will quickly accumulate your debt due to late payment fees and interest penalties.

Guaranteed loans for bad credit from direct lenders only come with a small amount of money. Normally, lenders do not approve more than £1,000. It is worth bearing in mind that the lending decision is not simply made based on your repayment capacity. Your credit score also plays a paramount role.

Your credit rating is an acknowledgement of your past payment behaviour. At the same time, your income sources reveal your future repayment capacity. It is likely that you have a strong income source, but how much debt you actually owe and how you handled it can only be seen by reviewing your credit report. If a lender finds that your debt-to-income ratio is quite high or that you were not responsible with your previous debt payments, they will likely call your credibility into question. Chances are, they will refuse you.

Some lenders treat guaranteed loans as no credit check loans

Guaranteed loans are also considered no credit check loans, especially if the loan amount is so small, for example, less than £1,000. The approval is simply made based on your income sources. Some lenders do not run hard inquiries. They would rather run soft inquiries, and they do not affect your credit score as they are not recorded in your credit file.

However, it is vital to understand that the lender you are applying to for a loan actually runs soft inquiries. This is because some lenders actually run no credit checks at all, and such deals could be very expensive. In fact, you might end up with a loan shark. Check the authenticity of a lender and confirm whether they will run soft inquiries or not. If no credit searches are made, neither hard nor soft, they will likely be loan sharks. You should beware of such loan providers.

For instance, if you are applying for guaranteed car finance for bad credit in the UK with no credit check, make sure that soft inquiries are conducted. They will not pull your credit points, and yet you can avoid being charged with a very high interest rate. However, those who do not run any credit checks at all might be loan sharks. They will charge very high interest rates, and it is likely that you will end up with insurmountable debt.

The final word

Guaranteed loans are guaranteed acceptance loans. They are not meant to guarantee approval. The approval depends on your income sources and credit score. Even if you apply to a lender that runs no credit checks at all, they cannot guarantee approval, as the lending decision is subject to an affordability check, which cannot be done without checking your income sources. No matter which loan you are applying for, you must have a good credit score and great income to prove your repayment capacity.