The lending world is complicated. While lenders need to adhere to YMYL guidelines, ensuring the financial stability of borrowers is not harmed, most of them make outlandish claims to trap credulous borrowers into expensive deals. Such lenders are loan sharks. The lending world is full of lies and deceit. Caution is enjoined.
Some lenders claim to provide loans with “guaranteed approval”. Applying for these loans is quite convenient, as there is no chance of being turned down. Your application will be 100% processed, and money will be disbursed to your account. Unfortunately, this is absolutely a myth. No legitimate lender can provide you with guaranteed approval loans.
Not until lenders peruse your credit profile will they be able to approbate your application. Guaranteed approval is a marketing term that lenders employ to maximise submission of loan applications from subprime borrowers, but on no account does it imply that all applications will culminate in the disbursement of funds.
Why are guaranteed approval loans misleading?
Here are the reasons why guaranteed approval loans are misleading:
- Guaranteed approval loans do not exist at all
Guaranteed approval loans are scams. They do not exist at all. No legitimate lender can promise to approve your application without a perusal of your overall credit profile. An affordability check is mandatory as per the FCA guidelines in order to safeguard borrowers’ interests. A lending decision is rendered following the evaluation of your credit score and income sources. Without the formal submission of a loan application, a lender, however, has no basis upon which to assess the applicant’s repayment capacity.
Only after the assessment of your repayment capacity will a lender decide on approval or rejection. Guaranteed approval marketing claims should not be entertained. Be wary of the fact that you are at risk of being trapped in an expensive loan deal if you apply to a lender making such outlandish claims. The term “guaranteed” is a marketing gimmick, not a reality.
- Hidden eligibility criteria
Guaranteed approval term is backed until applications are submitted. Afterwards, lenders request documents such as pay slips, proof of employment, a bank statement of the previous three months, and a residency proof.
Lenders repudiate applications if your credit score is lower than the bare minimum score established as part of their acceptance criteria. Substantially higher interest rates are imposed when your financial condition is weak to offset the perceived risk of default.
You may experience disappointment after being rejected on the grounds of insufficient income and a substandard credit report, although guaranteed approval claims were made, which precipitated you into action.
- Exorbitant interest rates
Loans marketed as guaranteed approvalcome with exorbitant interest rates, which are determined after a thorough evaluation of default risk. A high perceived risk will attract high interest rates. Lenders do so to offset the perceived risk. There is a high probability of spiralling it into unmanageable debt.
- The risk of loan scams
Guaranteed loans are loan scams. They are offered by loan sharks who are unregistered lenders. Genuine lenders do not guarantee approval. Loan sharks or unregistered lenders use this term in order to attract subprime borrowers who have been refused elsewhere.
Loans for bad credit from direct lenders are not easy to qualify. Responsible lenders will carefully peruse your overall credit profile. If your repaying capacity is called into question, they will most likely turn you down. Unfortunately, loan sharks take advantage of this scenario.
Those who are in need for money and cannot secure a loan get trapped into such offers. Loan sharks charge outrageously high interest rates. You will most likely fall into an abyss of debt. Just because you have borrowed money from an unregistered lender, it does not mean that you can abdicate responsibility.
Your credit score will ruin if you make a default. You cannot even make an affordability complaint against the lender because it was you who borrowed money from such a lender in the first place.
- Predatory practices
Such lenders exploit the vulnerability of borrowers by charging hidden fees and aggressive e collection tactics. They structure repayment terms that guarantee default, to induce loan rollovers. This practice enables them to impose interest penalties and late payment fees, accumulating the debt. once you get caught in an ongoing cycle of debt, you will find it all the harder to get out of it.
What are the alternatives to guaranteed approval loans?
Consider the following legitimate loan options:
- Credit union loans are small loans available from credit unions. They are ideal for funding small, unexpected expenses despite a less-than-perfect credit score. They charge lower interest rates than online lenders.
- Peer-to-peer lending is quite a popular alternative. Peer-to-peer lending platforms connect you top individuals who provide loans to earn interest. This could prove to be a more affordable option than borrowing money from unregistered direct lenders.
- Responsible and authorised online lenders will approve your application based on your affordability, so there is no risk of falling into an abyss of debt.
- Emergency-assistance programmes are also available. For instance, you can apply for budgeting loans. They do not charge any interest rate.
Ways to protect yourself from loan scams
Here is how you can protect yourself from loan scams:
- Do proper research and look for common red flags. If you come across terms like “guaranteed approval” and “instant decision”, you should immediately understand that the loan provider is a loan shark.
- Make sure to read the fine print as it discloses all details about interest rates, fees and associated charges. You will get to know the actual cost of the loan.
- Check the FCA register to know the registration details of a loan company.
- Check Google reviews. This will help you get a better idea of the reputation of a lender.
- Make sure that you do not make a borrowing decision hastily.
The final statement
Guaranteed approval loans do not exist. Loan sharks or unregistered lenders use this gimmick to trap vulnerable borrowers into a debt trap and extort money by charging incredibly high interest rates.
