- Emma Anderson
- January 24, 2020
There are various direct lenders inviting applications from bad credit borrowers. However, there is a possibility of rejection. An online lender will peruse your credit report, and if they doubt you cannot pay back the money on time, bad credit rating matters a lot when it comes to applying for a loan. When you have an impaired credit standing, you try all your best to have a loan approved at once.
Applying for a loan with a bank can knock your credit score. Therefore, you have left only one option – direct lenders. They run soft inquiries, and hence your credit score does not go down. Most of the direct lenders provide guaranteed loans. The term can imply that you need a guarantor, but it means loans with guaranteed approval.
Guaranteed approval means no matter how bad your credit rating is, you will get money. You do not even need to put collateral to apply for these loans. You need to fill out the application form, and you will get cash within a couple of minutes.
Not all guaranteed loans are bad
Each lender has a different policy, and therefore the terms and conditions for guaranteed loans vary from lender to lender. For some direct lenders, a guaranteed loan is just a term to attract the attention of users. When bad credit borrowers apply for a loan, they tend to get it approved as soon as possible. However, you must choose a reliable direct lender.
Reputed direct lenders will allow you to borrow money despite a bad credit rating, but they will look over your affordability. You are eligible to put in the loan application despite your poor credit rating, but it does not mean that a lender will not examine your affordability. After initial-stage approval, you will have to turn in your income statement that the lender will consider determining your affordability.
If the lender believes that you can manage to repay the loan after meeting all of your monthly expenses, you will get money in your account.
When can a “guaranteed approval” be a sign of danger?
Guaranteed approval can be a sign of danger when a lender approves your loan without a running a credit check. A credit check gives a lender insight into your payment history. It tells them your record of handling loans. You can get a loan if you are a subprime borrower, but if your score is very poor and a CCJ shows up on your report, a reputed lender will never entertain your application.
Some direct lenders do not consider your affordability, and hence there are chances that you get into a debt trap. They neither run a credit check nor assess affordability before lending money. It seems attractive when you get cash despite going through such formality, but this might affect your finances severely.
When you fail to pay off the loan, a lender will impose late payment fees and interest penalties. It adds up the cost, and you quickly fall into debt.
Affordability matters a lot
When you apply for a loan, affordability is one of the significant factors that every lender is supposed to take into account. Even though you have a bad credit rating, a lender will run soft inquiries.
A soft credit check will not pull your score and help a lender know about your affordability. They will also review your income statement. A reliable lender will never approve your application if you cannot afford your regular expenses along with the debt.
Make sure that you apply for a guaranteed loan with a reputed direct lender who disburses your funds based on your affordability.
Guaranteed loans do not aim at trapping you in a debt cycle as long as you borrow money from a trustworthy and prominent lender. Make sure that you do not apply for these loans with those who transfer funds to your account without checking your affordability.
If anyone is providing you with these loans without assessing your repaying capacity, do not go ahead. These loans will be a predatory payday loan. Prominent direct lenders will run a soft credit check and look over your income statement before approving a loan.