Loans for bad credit with guaranteed approval sound like a saviour when you are struggling to qualify for a loan, and you are in dire need of money. The fact is that no loans come with guaranteed approval. Registered direct lenders are not permitted to market their financial products as guaranteed, according to the FCA guidelines.
A responsible lender cannot approbate a loan application without perusing a credit score and income sources. Your credit score is an acknowledgement of your payment behaviour. A poor credit history will reflect on your potential to qualify for lower interest rates. However, the lending decision cannot be simply made based on your credit history.
Your repayment capacity will also be taken into account. It is likely that your credit score is up to scratch, but your budget does not have wiggle room to pay for a loan along with your essential expenses.
Of course, a lender cannot guarantee approval without going through your credit report and financial statement. It means bad credit loans with guaranteed approval are a myth. They do not exist at all. If a lender finds that your repayment capacity is not strong enough, they will repudiate your application.
Why is guaranteed approval not possible?
Here are the reasons why guaranteed approval is not mandatory:
| Reasons | Explanation |
| Risk assessment is mandatory | Risk assessment is mandatory. No lender will approve your application without checking your affordability. Otherwise, you will fall into an abyss of debt. |
| Regulatory compliance | All registered lenders are required to run affordability check. This is important as per the FCA guidelines. |
| Fraud prevention | Many illegitimate lenders can trap you into expensive deals by such outlandish claims. There is a huge risk of irreparable damage. |
What is the reality of guaranteed loans?
The truth is that guaranteed loans do not exist, but some lenders use the “guaranteed” term in order to refer to:
High acceptance rates
Some lenders use this term in order to suggest high acceptance rates. It means that borrowers with all credit scores are welcome to apply for loans. This term is used to encourage borrowers to apply for a loan even if they have been refused elsewhere.
For instance, if you are to take out loans for bad credit from direct lenders, some will have advertised their loans as guaranteed acceptance. It does not imply guaranteed approval. It means lenders are willing to accept your application, but only if you can afford it will they approve it.
The presence of a guarantor
Some lenders use this term in order to suggest that you will have to arrange a guarantor. For instance, bad credit loans can be a bit difficult to qualify for. Most of the lenders will restrict the lending amount and charge high interest rates.
But if you are perceived as a risky borrower, your chances of being rejected are quite high. In this situation, your lender might ask you to arrange a guarantor. The guarantor could be anyone, either your friend or a family member, who must have a good credit rating.
Since they will enter into a contract with you, they will be responsible for discharging the debt in case you fail. Guarantors reduce the risk of a lender, and therefore, they charge lower interest rates.
It is worth noting that if you come across a lender who claims to provide loans with no credit checks, you must understand that they are operating outside the FCA regulations. Such lenders are loan sharks who charge exorbitant interest rates.
Borrowing money from loan sharks will most likely throw you into debt. It is advised against borrowing money from unregistered lenders, as you cannot file an affordability complaint against them, since it was your obligation to check their authenticity in the first place.
What authentic and legal options exist for borrowers with bad credit?
Here are the alternatives that are accessible:
Personal loans
Personal loans are unsecured loans. They enable you to meet unexpected expenses as well as planned big expenses. If you borrow a small amount of money, you will be required to pay it off in one fell swoop, but if you try to borrow a large amount of money, you will be paying down the debt in fixed instalments over an extended period of time.
At the time of using a personal loan, make sure that you can repay the debt. They are slightly more expensive than secured loans.
Secured loans
It is likely that your less-than-perfect credit history gets in the way of borrowing money. Since the risk of default is high, your lender will either ask you to arrange a guarantor or secure it against your house or car. Collateral is generally put down when you have to borrow a large amount of money.
Co-signer loans
Co-signer loans are different from guarantor loans. A guarantor enters into a loan contract with you, but only to pay when you fail to repay your debt. They are not supposed to use the money you borrow.
A co-signer, on the other hand, is a co-applicant who borrows money along with you. You both are responsible for discharging your obligation. If one of you fails to settle the debt, the other will be obligated to repay it.
Steps to improve your chances of getting approved
Here is how you can improve your chances of getting approval for a loan:
- You should try to build your credit score. While subprime borrowers can get approval, you should still have a decent credit rating.
- Try to borrow a small amount of money. You will be perceived as less risky, and hence you can easily get approval.
- Prove your affordability. Make sure that you have a stable income source.
The final word
Loans for bad credit with guaranteed approval are a myth. They do not exist at all. If you come across such loans, you should not believe them. You should rather consider legitimate options. Registered lenders do not guarantee approval, although they guarantee high acceptance.
Also read can unemployed people get a bad credit loan in the UK.
