Are guaranteed loans the same as personal loans?

As long as a loan is not backed by collateral, it is regarded as a personal loan or an unsecured loan. Several types of loans come under personal loans including, payday loans or small emergency loans, required to be paid back in fell one swoop on the due date. They also include instalment loans, also called term loans, with a repayment length from a period of 6 months to five years.

Many lenders advertise their loans as guaranteed loans, which means the approbation of your loan application regardless of your financial circumstances and credit rating. Unfortunately, no such loans exist on the market. As a matter of fact, no lender is permitted to make such apocryphal promises. It is mandatory for every lender to check your credit history and income sources to ensure you will not fall into debt.

If you somehow find any lender offering these loans, they must be payday loans. Most lenders do not check credit scores of people as they are aimed at subprime borrowers. Not to mention, they are way too expensive. Guaranteed loans for bad credit in the UK might trap you in an ongoing cycle of debt.

However, some lenders use guaranteed loans, which means guaranteed acceptance. They accept applications from all kinds of borrowers, including subprime ones. The approval will be made based on their credit history and income sources.

These loans are favourable because the application process involves an affordability check. No lender will sign off on your financial condition if it is weak. This will preclude you from borrowing beyond your affordability.

Guaranteed loans are not exactly the same as personal loans

Guaranteed loans are small emergency loans and are aimed at helping you tide over during financial emergencies. You must remember that guaranteed loans, here, mean guaranteed acceptance. There are no such loans that give guaranteed approval. A lender cannot guarantee approval without evaluating your credit score and income sources.

Having said the above, guaranteed acceptance loans are small emergency loans; the loan amount is not large. The maximum amount you can borrow is up to £1,000. However, most lenders will cap on £700. The repayment length of these loans is very small, mostly not more than a month. However, if the amount is not more than £500, you will be required to pay back the debt within 14 days.

If you are required to discharge the debt in fixed instalments, they will be done weekly, so the whole debt is settled within a month. Once you settle your debt, the account is closed.

It depends on the lender’s policy and the borrowing amount whether the loan account will be recorded on your credit report or not. Mostly, lenders do not run hard credit checks when the borrowed sum is not more than £500, and hence, on-time payments are not recorded. However, if the default is made, your lender will immediately inform credit reference agencies of your missed payments.

The default stays on your credit file for up to six years, which means your borrowing capacity will be affected for that period of time as a result of a poor credit rating. However, you will observe your credit score going up after the default is removed from your credit report.

Personal loans help meet large expenses

Personal loans cover a wide range of loans. Some loans are small emergency loans, while others are aimed at meeting planned major expenses such as weddings, home refurbishment and the like. Unsecured loans aimed at funding large expenses are paid back over an extended period of time. Depending on the amount of money, the repayment period of the loan will be between six months and five years.

Mostly, personal loans are discharged within 18 months. Because they are not secured by any collateral, the lender does not have any property to liquidate to obtain their money back. Every month, a fixed instalment will be paid by you. It will be much easier to manage payment as you already know how much you are to pay every month.

As soon as you receive your paycheque, you can immediately stash away money for your debt. This removes the chances of falling behind on payments. Personal loans include hard checks, meaning hard search footprints will be made on your credit report. The more the inquiries are visible, the lower the chance of borrowing money will be down the line.

Unlike guaranteed loans, personal help with improving your credit score

Contrary to guaranteed acceptance loans, unsecured loans help with boosting your credit rating too. On-time payments are reported to credit reference agencies; however, lenders are not bound to do so.

Many people use credit builder loans, a form of personal loan, to build their credit history or alleviate the damaging effect of previous inquiries. Credit builder loans are repaid over a period of six months in fixed instalments. They are expensive but worthwhile. Paying off a personal loan on time will be reported to your credit file, and then you will notice an increase in your credit score.

However, missed payments and late payments on personal loans will have the same impact on your overall credit profile as guaranteed loans. Late payment fees will be levied on your account, which will result in a dramatic rise in the total cost of the debt.

Late and missed payments will be recorded on your credit report. The former will stay for up to two years, and the latter will stay for up to six years. As a result, you will struggle to borrow money at lower interest rates in the future. You can avoid having late payments recorded on your credit report if you clear the dues within a month after the due date, but late payment fees will certainly be charged.

To sum up

Although guaranteed acceptance loans are a type of personal loan, they are slightly different from instalment personal loans. You should always understand how a particular type of personal loan works before applying for any so you do not struggle with them later.