How Does a Guaranteed Personal Loan Work?
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Introduction
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Guaranteed personal loans, sometimes called payday loans, are made available to high risk and poor credit history borrowers, usually by non-bank lenders. A borrower with a sound credit rating can get a signature loan from a bank in which nothing particular is needed but their signature to back the loan. The terms on such a bank loan will be much better, with lower interest rates. To make guaranteed loans to risky borrowers, however, lenders need a little more to go on than a signature.
Terms and Limitations
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The basic requirements for a guaranteed personal loan is being able to hold a steady job for at least 3 months (and you must prove that you've had it for this long) and having a bank account in good standing. The borrower cannot be in the process of discharging a bankruptcy because there could be risk of intervention by the court and attaching the new loan to the proceedings, probably at the expense of the lender. Those seeking a guaranteed personal loan are also required to be at least 18 years old so they are legally bound by their decisions. Credit scores, however, usually don't figure into the guaranteed loan process. The amount and terms of the loan will be predicated on the demonstrable monthly income and the bank account balance. In most cases, the loan is short term and will start becoming due at the borrower's next pay check.
Once the loan is approved, the lender deposits the funds directly into the borrower's bank account, often overnight. Direct access to the bank account is key because rather than waiting for the borrower to make payments on the loan, the lender will debit the bank account directly. Having this sort of guarantee is what allows the lender to overlook a borrower's poor credit score. If the borrower's account is over drafted by the payment on the loan, the responsibility of collection falls on the bank rather than the lender.
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Critics
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Payday loans have been criticized by many for taking advantage of those in the direst of need and offering the most onerous terms to those least able to pay. Interest rates on payday loans are, in fact, usually far in excess of the rates associated with more standard loan options. Borrowing against a future paycheck can leave the borrower in exactly the same situation month after month. On the other hand, some working citizens find the ability to obtain cash advances on their future earnings is crucial to helping them survive, if not overcome, their misfortunes. If nothing else, at least the opportunity to better themselves exists. Guaranteed personal loans are also available for auto purchases, school costs and business needs.
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