When you need fast cash in an emergency, you don’t want to waste time with an application that ends in rejection. You want to be certain that you’ll be approved for the online loan. After all, you need it to take care of business — whether that’s seeing a dentist after chipping a tooth or getting a mechanic to take a look at your squealing brakes.
Guaranteed approval loans sound like a sure bet when you have bad credit that you believe may stand in the way of your approval. Their name suggests they approve anyone who applies, regardless of their financial situation. And they might just do that — for a price.
Keep scrolling to discover the truth about guaranteed approval online loans, their safer alternatives, and how to make sure they are legit in an emergency.
What Are Guaranteed Approval Loans?
Guaranteed approval loans are short term personal loans that promise anyone who applies that they will be approved, even with bad credit. Approval doesn’t hinge on the usual criteria that you can expect from legitimate lenders. In fact, they often don’t look at your financial situation at all before sending you funds.
For that reason, they may also be known as no credit check loans. No credit check financing options are exactly what they sound like; the lender won’t check your credit when you apply.
Why Should You Be Wary of Guaranteed Approval?
If you have rock-bottom credit, this sounds like your meal ticket to fast cash. Why look a gift horse in the mouth when you need help in an emergency?
Unfortunately, guaranteed approval isn’t all that’s it cracked up to be. It indicates the lender in question doesn’t care about your ability to repay your loan online. This raises a few brightred flags.
Red Flag #1: They Want You to Pay Late
Why would a lender get into a contract with someone who can’t pay? Because it could be lucrative for them.
Many of these lenders offer payday loans with sky-high rates and fees, so they’ll earn more interest every day you are late paying them back. Late payments also pile on late fines and other penalties that inflate how much you owe.
Red Flag #2: They’re Debt Traps
Some lenders offer the ability to roll over a payday loan. Rolling over your loan lets you extend your due date, giving you more time to cobble the funds together.
But there’s a catch. You usually have to pay a roll over fee for the privilege, tacking on more money to your outstanding balance.
While in theory, an extension sounds like it could help, they rarely do. Because these loans come with such high fees to begin with, it’s hard for borrowers to come up with the cash they need, even with the extra time. Instead, they are caught in a spiralling debt cycle as they continuously roll over their loans and increase costs.
According to the Consumer Financial Protection Bureau, three out of five payday loans result in borrowers paying more in fees than the amount they originally borrow.
Red Flag #3: They Could Be a Scam
Debt.org goes on the record to say that a lender that offers guaranteed approval could be running an outright scam to defraud you of your personal information.
This information holds the keys to your financial profile. With it, a scammer can access personal accounts or use your info to open fraudulent cash advances in your name.
Here are some other scams Debt.org wants you to know before you borrow:
- Advance fees (up-front payments to release funds).
- Pressure to act immediately, so you overlook suspicious terms.
- Unusual payment methods (such as gift cards and money transfers).
How Can You Find Legitimate Online Loans for Bad Credit?
Now you know to avoid the promise of “guaranteed approval,” where can you turn to in your time of need? While bad credit and other financial issues can disqualify you from getting some loans, you don’t have to risk scam loans to get help. Legitimate online loans for bad credit exist, if you know how to look for them.
You’ll want to look for lenders with an “ability-to-repay” rule. This is a good-faith assessment of your financial situation to ensure you can make good on a debt.
How do they determine this? Every financial institution is different. Many of them prioritize your credit when making this determination. However, they may also consider the following information:
- Debt-to-Income Ratio
- Employment History
- Pay Schedule
Lenders will have minimum standards on the information they review that borrowers must meet to be approved. If they use risk-based pricing, they may also use this information to set your rates.
Another green flag is transparency. Legitimate lenders are upfront about the rates, terms, and conditions of their personal loans. They want you to know how much borrowing will cost if you’re approved.
Legitimate online loans for bad credit tend to apply higher interest rates than good-credit loans. That’s why understanding your cost of borrowing is essential to finding a personal loan you can afford. You need to see how interest and other fees add to your principal. You also need to see how your payments break down in size and schedule.
Your lender should share all of this with you before you accept their offer. This way, you have time to check your budget and confirm you can repay that particular loan online.
Affording an online loan may take some tweaking. Many people have to put fun spending on hold to cover this new expense. But if you would have to choose between paying your loan or an essential bill, this is a sign you can’t afford a loan.
You should go back to rate shopping for a better deal. You may also want to consider secured personal loans or co-signing with a loved one. Secured personal loans require you to put down an asset as collateral, which may lower your rates. A cosigner, on the other hand, acts as a guarantor to do the same.
The Takeaway: View Guaranteed Approval with Caution
If you have bad credit, happening across a guaranteed approval loan may feel like you’ve found a financial cheat code. But in reality, you could be falling for an expensive trap. Legitimate lenders will always check your finances before they offer you a loan.
If you think your score could stand in the way of approval, don’t stoop to no-credit check loans. Instead, spend some time researching online financial institutions that cater to bad credit borrowers. They assess your creditworthiness in different ways to ensure you can handle your next loan.