What is guaranteed loan approval? Facts explained
Guaranteed approval means your loan applications cannot be refused for any reason, whether it is a poor credit rating or insufficient income. The fact is that this is a misleading term. No lender could guarantee approval without running an affordability check, which includes a review of your credit score and income sources. Only if your credit report demonstrates responsible past payment comportment and the capability to discharge your debt will a lender be able to approve your application.
A legitimate lender will never guarantee approval of your loan application. So, if you come across a lender offering a guaranteed approval loan, it is a red flag. Loan sharks usually provide these loan products in order to trap credulous subprime borrowers who are refused elsewhere and to extort money from them.
Lenders who claim to provide you with guaranteed approval loans:
- Are loan sharks.
- Charge exorbitant interest rates.
- Require you to discharge the debt in one fell swoop.
- Charge heavy penalties and late payment fees if you fail to discharge your obligation.
- Will most likely throw you into an abyss of debt. In fact, you will not be able to complain against them because you chose them deliberately in the first place.
Why cannot a loan approval be guaranteed?
When you apply for a loan, a legitimate lender is supposed to run the following checks in order to determine whether you can repay the debt on time.
- Hard or soft check
Even though there is no such thing as guaranteed payday loans, regardless of the size of a loan, a lender would want to know your past payment behaviour. They can collect this information by checking your credit report.
It depends on the lender which credit reference agencies they would contact to obtain your credit file. If they run a hard check, you will lose your credit points, but your score will bounce back as soon as you start making payments on time. Hard inquiries are run only when you are taking out long-term loans and personal loans.
Loans aimed at meeting small emergencies, such as payday loans and text loans, do not require a hard check. Lenders generally make lending decisions based on the revenue facts you feed into your application form. However, they still run a soft check.
Soft check does not leave any inquiries on your credit file, and therefore, there is no chance of failing your credit points. No matter which loan you apply for, a lender will run either a soft check or a hard check, as it enables them to understand your payment behaviour in the past.
It is likely that your income sources are good, yet you fail to discharge your debt, as you keep spending money on frivolous purchases.
- Your income sources
When you apply for short-term loans such as payday loans, the decision is made based on the financial details you provide in an application form. Despite that, you are required to submit pay slips and bank statements.
No lender would lend you money if they found that your income is not enough to settle your debt.
For some lenders, guaranteed loans mean guaranteed acceptance
Not all lenders are loan sharks just because they are promoting guaranteed loans. For some lenders, it means guaranteed acceptance loans. It is a way to encourage as many applicants as possible to apply for a loan. There are various subprime borrowers who do not apply for poor credit loans because their credit rating is too low.
Guaranteed acceptance here means that your loan application will not be rejected on the grounds that your credit score is poor. A lender gives you a chance to apply for a loan. Of course, you would be charged high interest rates, but since loans are from legitimate lenders, you will be lent money only when you can afford to pay it back.
They will carefully peruse your credit report and income sources in order to determine whether you have the potential to discharge the debt. Only if your budget allows you to meet payments without struggling with meeting other essential expenses will they approve your loan.
Preapproval also does not guarantee acceptance
The concept of preapproval loans comes with long-term loans such as mortgages and large personal loans. A preapproval qualifying letter is necessary while looking for a property you want to buy because it indicates to sellers that you are investing in buying a property.
Likewise, a prequalifying letter for a personal loan ensures that you have some chances of being accepted by a lender, but these letters do not guarantee acceptance. Prequalifying approval is made based on the details you provide. No lender runs a hard check at this stage.
But when you formally apply for a loan, they will fully inspect your credit score. In order to check your credit score, they will have to run a hard check. If they find that your credit score is lower than the bare minimum score they have set for approval, they will turn you down. In some cases, they may entertain your application despite a bad credit rating, but high interest rates will be charged.
Apart from this, your income sources are also taken into account. Now, a lender would require you to submit proof of income, such as pay slips, bank statements, income tax returns, and profit and loss statements. Now they will assess whether your budget has the capacity to keep up with payments without any obstacles.
Do not forget that your lender will also like to know an alternative payment plan, especially in case of a mortgage, if your financial condition is turned upside down. So, now you know there are several factors that lenders take into account to approve a loan. Therefore, prequalifying letters cannot guarantee approval.
Wrapping up
A guaranteed loan approval is a misleading term as no legitimate and registered lender can guarantee approval without perusing your credit report and income sources. However, some lenders use this term as a way to express guaranteed acceptance despite a low credit score, but it also does not ensure guaranteed approval.
Paul Smith is an established financial author and writer with over nine years of experience, who specialises in personal finance, loans, credit management, and investment strategies for people throughout the UK. Paul’s expertise can be seen on leading loan websites such as Bargainloans. Through his blogs and articles Paul has helped thousands of borrowers make wiser financial decisions while his passion for study encourages people to take control of their finances with greater confidence and clarity
