About Guaranteed Personal Loans

Guaranteed personal loans are generally intended for people who require financing but do not have the financial backing and credit to apply for other types of loans. In most cases, guaranteed personal loans take the form of payday loans. Loans can be helpful when an individual needs money to pay a bill or purchase an item that they wouldn't normally be able to finance. However, loans should be treated carefully as part of an overall strategic plan for financial health.

Significance

Guaranteed personal loans are often a last-resort financing measure taken by individuals who need financial assistance but cannot get it through other avenues. One of the most significant demographics impacted by guaranteed personal loans are those who have bad credit or need expedited access to extra funds due to an emergency.

Types

The most common type of guaranteed personal loan used by North Americans is the personal payday loan. This type of personal loan is a small (generally, capping at several hundred dollars), very short-term loan that's meant to pay for the borrower's expenses until the arrival of the borrower's next paycheck. These personal loans are guaranteed against the next paycheck amount. Such personal loans are further defined on a state-by-state level, depending on the individual state's laws and regulations covering personal loans.

Features

Borrowers must go through an extensive application process for applying, and receiving, a guaranteed personal payday loan. This process has several major features, though individual features and steps may differ from state to state. Essentially, an individual in need of a guaranteed personal loan goes to a payday lending store and submits an application for a personal loan that is due when the borrower receives his or her next paycheck. Such guaranteed personal loans generally have a higher interest rate compared to other types of loans (10 to 35 percent), though some loans may be much higher. At the end of the loan period, the individual borrowing money must go back to the payday lending store and pay back the short-term loan in full.

Size

Millions of United States' citizens utilize guaranteed personal loans as a way to stretch their money from paycheck to paycheck. In 2004, more than 10 million Americans applied for, and received, a personal payday loan. The 2008 U.S. financial crisis also drove more individuals to payday lending stores during times of increased economic hardships.

Warning

Personal payday loans have faced criticism and attacks from consumer advocacy groups over the loans' high interest rates, which can amount to over 500% in terms of annual percentage rates (APR). For example, the Consumers Union argues that payday loans exploit those in economic hardships, and specifically target young and poor demographics that might have less financial options. Due to their higher-than-average interest rates, guaranteed personal loans should be avoided and only used as a last resort when borrowers have exhausted any and all other alternatives.