Have bad credit? 4 things you should know about personal loans with guaranteed approval from direct lenders
It’s comforting to think that you can apply somewhere and immediately have a loan guaranteed and ready for deposit in your bank account. However the first place you look may not be the best option for a guaranteed loan. Even if the loan promises fast delivery and guaranteed approval, it never hurts to understand how the industry works and how to find the best personal loan for your circumstances.
Personal loans are unsecured loans.
When you arrange a personal loan, it should be guaranteed based on your promise to repay, not your car, home, paycheck or other item. A true personal loan is an unsecured loan meaning you don’t have to put up collateral or risk losing your home or transportation if you fall into hard times and can’t repay.
Understand as well that you may have to provide an income statement of some kind to show that you qualify for the loan terms, but an unsecured loan from a direct lender is not the same as a payday loan.
Personal loan terms reflect the bank’s risk.
An unsecured personal loan doesn’t have collateral, which means the bank is taking a bit of a risk when loaning you the funds. The interest rate and the terms on the loan are going to reflect that risk. Every direct lender has its own criteria for what sort of risks they are comfortable with, which is why you will find different repayment terms with different lenders.
Generally, lenders assess your risk through your credit score. A low credit score means that you might have missed a payment or two in the past. Banks may ask you to pay a slightly higher interest rate on the loan as a way to offset what they feel is risky. If you choose to take out a personal loan from a direct lender who is not a traditional bank, you may find more appealing terms as they assess risk in different ways.
There are three types of lenders for personal loans.
Direct lenders are only one type of lender you can use when you are applying for a personal loan. You have choices when it comes to borrowing money, even with bad credit.
Direct lenders – These lenders will approve your loan directly and the funds you receive for the loan will be sent directly by this lender. The majority of direct lenders are some form of bank. They might be online banks, local banks, credit unions or even the federal government. The direct lender reviews your application and, if approved, it sends you funds directly.
Loan aggregators – These lenders aren’t a direct lender themselves, but they work as a curator of other lending partners. You submit your loan application to the loan aggregator who then, in turn, submits to the lending partners who are likely to approve your loan. You submit your application a single time, but you can see personal loan possibilities from multiple lenders. This makes loan aggregators a great choice if you are truly comparison shopping for the best loan terms.
Peer lenders – Peer-to-peer lending networks exist in a few forms online. Unlike traditional bank loans, peer-to-peer loans involve a personal loan that is funded by investors rather than bankers. Effectively one person is lending money to another through the online lending platform. Investors may be more willing to consider individuals with bad credit, and they may offer more favorable terms as well as they don’t have to follow the risk protocols of traditional banks.
A guaranteed loan mean you must be prequalified.
If you want to arrange a guaranteed loan, you will have to take steps ahead of time to see out a “soft” approval. A preapproval requires a soft credit check, which will not reflect on your overall credit score. The bank is simply checking your credit score to see where you stand and determine their willingness to lend.
Once you choose a loan and apply for it, the bank or lender will do a hard credit check to get your full financial picture. That picture will be used for the full loan terms and it will be reflected on your credit score.
Choosing a loan with you have bad credit should be approached with the same caution as any financial decision. You want to know that you are getting the most favorable terms possible and that you are working with a reputable lender. Check your options, consider the terms and what fits your personal budget and repay the loan accordingly. Taking out a loan and repaying it in a timely manner will help you improve your credit score to give you even more options for future loans.