The Impact of Guaranteed Loans on Your Finances

The most definite suggestion that strikes users about guaranteed loans is- “anyone can qualify for the loan.”  They believe that the lending organisation guarantees it. However, it does not work that way. Guaranteed loans do not imply that anyone can get them. It works just like other loans and has eligibility criteria.  You may get a guaranteed loan if you can repay it within your current financial circumstances. It is a short-term loan ideal for emergencies.

You must pay the payments without disturbing your budget. The debts must not exceed the income. Authorities conduct credit assessments to determine the approval potential. They consider multiple aspects to determine that. It includes employment history, income, debts, joint account connections, etc. Accordingly, the provider decides the approval and sanction amount.

Most users seek guaranteed loans because of their very name. They may get it with regular income. However, an unsuitable agreement wrecks the financials. They struggle to pay the dues and default. It further increases debt and makes it impossible to pay. Thus, one must conduct due diligence before getting guaranteed loans.   It may have a positive or negative impact on finances.

The blog lists some aftereffects of guaranteed loans on finances. You may face these due to neglect or delay in acting.

What are guaranteed loans?

Guaranteed loans are the quick cash facility that lenders provide. Anyone with a basic income and lengthy employment history may qualify. According to the rules, no direct lender can provide a loan without basic checks. It must follow the FCA standard to conduct a credit assessment before approval. It safeguards the lender and the borrower’s finances. However, the credit check does not affect the credit rating.

 It just helps determine the amount the borrower can afford to pay back.   It is the reason that interest rates remain competitive. It implies missing a payment increases the total interest costs. Thus, no person can get over £3000. It does not mandate a guarantor or a collateral. Instead, individuals with good income backup, low debt ratio and disposable income qualify.

How do guaranteed loans affect your finances?

Guaranteed loans help tackle emergencies. It provides immediate cash access without detailed screening.  The process does not include detailed documentation or collateral analysis. Instead, it only demands authentic earning and identity documents to qualify.

You get guaranteed approval loans within 30 minutes by providing one. However, be careful while comparing interest rates. Choose the one charging the least. Next, pick a comfortable repayment period to avoid default distress. It reduces the negative impact of the loan on finances. Here are other ways it may impact your finances:

1) Fairly high interest rates

Unlike other loans, these loans work like a payday facility. It is income-based and shares competitive interest rates. The loan providers keep the interest competitive due to the risk involved. It does not attach any collateral and the provider may lose the money. It is when the borrower cannot repay the dues.

Solution:

However, you can reduce the impact by improving the affordability. Consider increasing the financial flexibility on your end. You can do this by increasing final savings by the month’s end. It reassures the lender of the payment. The more savings you have, the lower the interest rates.

2) Aggressive repayment timelines

Such loans generally have strict repayment timelines. This is because delay may affect the borrower’s financial health. No legally operating lender would want that. It is the reason they attach a fee if you roll over the payment.  This “additional penalty” condition helps ensure discipline payments. Who would want to pay more?  However, sometimes you cannot pay due to genuine circumstances. It affects credit and financials drastically.

Solution:

Use a loan calculator before choosing repayment terms. It helps understand the time it may take to pay the loan. You can adjust the scale according to your affordability. For example, if you can afford only £1000/month, check when you can expect to pay the loan. It provides you with the estimated time it may take. Thus, you can meet the timeline easily.

• Defaulting affects the credit score

Some credits significantly impact your credit score. Guaranteed loans are one such example. It is the most popular financing equipment in the UK. However, ease of accessibility requires proper payment management. Skipping 3-5 payments in a row attracts a penalty. Individuals with low income struggle to pay the dues. The provider grants a timeline to clear the dues. After that, he issues a courtly order.  This CCJ affects the credit score for a long time.

Solution:  

Identify affordability while seeking no refusal of payday loans from a direct lender nearby. Yes, you may get it without strict credit or income requirements. It improves the approval chances.

Check the affordability by analysing your amount needs. The calculator provides the estimate. Don’t borrow something that you cannot pay for. Analyse your employment type. Individuals with seasonal or part-time income should choose a low amount with comfortable repayment tenure.

You can spread it up to 12 months. However, don’t extend the tenure unnecessarily. Some financial experts help determine the exact you qualify for. It is a part of initial credit screening. However, they don’t force you to accept the amount suggested. They provide the estimate after analysing your finances, income and credit report.  

Additionally, contact the provider if you cannot pay. They may re-adjust the agreement according to present affordability. It prevents skipping payments and attracting penalties.  Moreover, it keeps your credit score unaffected.

4) This may affect budgeting for other goals

The most important aspect of the loan is borrowing responsibly. Identify your critical liabilities before loaning up. It could be credit card bills, utility or grocery payments. Alternatively, you cannot skip the rent to pay the loan dues.  Most individuals fail to consider this aspect and suffer.

Budget for every expense you incur. Cancel the wants out of this. Focus on the needs and budget accordingly. If you dedicate all savings to loan payments, you can’t achieve goals. It may take a back seat.

Solution:

Determine how much you can borrow without affecting critical needs.  Keep some cash flexibility before borrowing. For example- If you earn £10000 monthly with £3000 savings, don’t borrow £5000. Instead, keep the borrowing lower than the monthly savings. You can consider £2000 in this case. The rest £1000 helps retain some financial flexibility. Moreover, no genuine lender provides a sum that hinders basic needs. Identify your options accordingly.

Bottom line

Guaranteed loans are ideal for individuals with regular income and short-term needs. You may consider one by comparing the interest rates and other costs. It prevents you from an offer that’s hard on your finances. It may affect payments and basic needs. Thus, search for verified providers that assess your situation before approval. It helps you avoid credit or financial fall later.