Have you heard the term guaranteed loans and are wondering what exactly they are? Keep on reading to learn how they work, who is eligible for them, and how to apply for them.
What Is a Guaranteed Loan?
With guaranteed loans, a third-party guarantees the borrower, which means that they assume their obligation of the debt in the case that the borrower defaults (fails to repay the debt).
This third-party could be a government agency, which basically buys the debt from the lending entity or financial institution, and then they become the ones responsible for the loan.
What Are the Most Important Features of a Guaranteed Loan?
Moreover, guaranteed loans are typically applied for by those with bad credit scores or those who aren’t doing too well financially. They give the lender reassurance that they’re going to get their money back, and they help candidates who don’t have a great chance to secure a loan.
However, it’s worth mentioning that guaranteed loans can sometimes be predatory ones. Predatory loans typically come with very high fees and interest rates, which can accumulate up to huge numbers, especially if the borrower defaults or makes a late repayment.
How Do Guaranteed Loans Work?
A very popular type of guaranteed loans on centrelink is a “payday loan,” whose collateral would be a postdated check, access to your bank account for debit funds, credit union or prepaid card account.
Typically, low fee payday loans are small ones, with amounts ranging between $100 and up to $1,000, which are due on your upcoming payday. The trick, however, is that they could charge fees that are triple as high as APRs (Annual Percentage Rate).
This is truer the shorter the term of the loan is, with one and two-week interest rates that reach up to 400% or even more upon defaulting. This is why, as we’ve mentioned earlier, they can be considered predatory loans by some.
Another common type for guaranteed loans is short-term instalment loans, which are small value ones with relatively long terms or repayment periods, spanning several months or even years. However, these ones also have pretty high APRs.
Most of the time the options with bad credit personal loans, guaranteed approval, no account, and no checking of the credit scores are quite suspicious and are most likely a scam to get you to owe the lending entity huge sums of money.
Who Does a Guaranteed Loan Suit?
Someone that’s looking for a guaranteed loan usually falls below the following categories, though not limited to them:
People With Poor Credit
Lending entities usually don’t care what the cause of a bad credit score is, and all that matters to them is the fact that the score isn’t up to par.
According to Equifax, anything falling below 506 would be considered a bad credit score. As for Experian, the number is a bit higher at anything below 550. Finally, according to Illion, anything below 300 would have “room for improvement.” Illion leaves things a little vaguer, but it’s good because its judgments aren’t so harsh and final.
People Who Don’t Want Their Credit Checked
If someone has a negative credit history or doesn’t want to damage their credit score with hard credit inquiries or if they have no credit history in the first place, they might not want to get their credit checked.
This is especially true if the borrower has sent multiple centrelink bond loan requests within a short duration. Hard inquiry notices on the credit report would definitely be alarming for lenders and make it harder to get approval for any loans for the unemployed.
What Are the Benefits of Guaranteed Loans?
Although a lot of them may be shady, some of them are offered by predatory shark second chance loans, and their risk is quite high. There are some undeniable advantages to guaranteed payday loans no matter what Australia, which include:
- Having access to financing which may otherwise be unattainable.
- Getting capital whenever is needed or necessary.
- A high degree of flexibility when it comes to repayment terms.
- Down payments are relatively low compared to other mini loan with bad credit types.
- Fast, hassle-free, and easy access to cash.
What Are Handy Uses for Employing a Guaranteed Loan?
Most of the time, taking out a loan for senior citizens isn’t the smartest idea if you’re just looking to pay some bills or make a purchase. It does make sense if you’re going to invest the money in something that could give you a return on investment, including:
- Paying the costs of a startup.
- Purchasing equipment.
- Purchasing real estate.
- Multiplying pre-existing capital.
- Providing debt refinancing.
- Purchasing fixtures or furniture.
- Paying costs of closing.
- Covering professional fees.
How Much Do Guaranteed Loans Actually Cost?
Usually, a guaranteed loan would cost you a fee of $10 to $30 for each $100 you borrow. So, if you’re taking out a loan for a car repair that would cost $300, you’ll be paying $345 back, whose APR is almost 400%.
And, for any reason, if you have to roll over your loan types to another deadline or payday, you’ll be paying fees. For example, if you roll over a loan 9 times, those fees can add up to $400 or even more.
So, before you decide to borrow a guaranteed loan, make sure that you’ll be able to pay it back as soon as possible and that it doesn’t exceed the amount you can actually pay back.
Who Is Eligible For a Guaranteed Loan?
Eligibility criteria for guaranteed small personal loans Australia may differ from one lending entity to another, but the general requirements that apply to basically all types of loans are the following:
- Being an Australian citizen or a permanent Australian resident.
- Being at least 18 years old.
- Having a stable job with regular and guaranteed income.
Some lenders demand that you have a bank account to which direct transfers of your income are deposited, and which they can have access to withdraw the repayments automatically.
Frequently Asked Questions:
Do Guaranteed Loans Creditors Check My Credit Score?
Yes. There isn’t a single lending entity that won’t check a borrower’s credit score, as the interest rate and some lending fees can change depending on a borrower’s credit score.
However, if you apply for a guaranteed loan with a private lender or ones that facilitate loans for those with bad credit scores, your chances of getting approval with a bad credit score are high. Still, they’re not guaranteed, as many lenders claim.
How Fast Can I Get Hold of the Loan?
This part is a little tricky as lenders that give you instantaneous money with 100% approval are probably loan sharks or scammers. Typically, bad credit lenders would still need to check some of your documents, your eligibility, and credit history before approving the loan. However, some can be as fast to deposit the money as one hour after approval, as long as it gets approved during business hours.
Guaranteed loans, like any type of loan, come with a certain degree of risk, which all depends on how sure you are that you’ll be able to make the repayment on time. If you have that covered, then a guaranteed loan can be a good decision for attaining immediate cash which would otherwise be impossible to get a hold of.