Is Guaranteed Approval A Real Thing?
In short: no. That’s why promises of “guaranteed approval” are a huge danger sign.
If you have bad credit, then your lending options are going to be tight. A credit score under 630 means that most traditional lenders are not going to work with you. Furthermore, applying for a loan from a bank or credit union could end up knocking your score even lower!
That’s why folks with bad credit often turn to no credit check lenders. These are lenders who, as you might have guessed, will not check your credit score before issuing you a loan. For someone who has bad credit, a no credit check loan sounds like just the ticket!
But if you see a lender that is advertising “guaranteed approval” for their no credit check loans, you should be careful; because “guaranteed approval” is not a real thing. And promises like this are a hallmark of predatory lenders that want to trap you in an unending cycle of debt.
Let’s break this down, shall we?
What is guaranteed approval?
Let’s not beat around the bush. Guaranteed approval is a myth.
Theoretically, guaranteed approval means that, no matter how bad your financial circumstances are, this company will lend you money if you apply for it.
The problem here is that just isn’t so. A lender that gave out loans to anyone who applied for one would not be in business very long. All lenders have some kind of minimum standards that potential customers have to meet.
Of course, the standard for some lenders is very low. Oftentimes, all you need to apply for a loan from them is a functioning bank account. This is usually true for payday lenders, who use a postdated check to “secure” your loan. So long as you have an account and a pulse, they’ll gladly lend you money.
But if you’re a member of one of the nine million US households that don’t have a bank account (known as “the unbanked”), then you still wouldn’t be able to get a loan from these folks.
Easy approval? Sure. Guaranteed approval? Nope!
Promising “guaranteed approval” is a danger sign.
The reason that predatory no credit check lenders advertise “guaranteed approval” is simple. It gets your attention, and it gets you to click on their ad or walk into their storefront.
Advertising “guaranteed approval” is no different than those click bait internet articles that end with “and you won’t believe what happened next.” It’s a tactic to get your attention and to get you in the door.
Lenders like these know that their potential customers have bad credit scores, low levels of financial literacy, and are usually in desperate need of some fast cash. They also know that once the person has clicked on their site or entered their store, they’re pretty likely to walk out with a loan.
So these lenders make big flashy promises (often times with an asterisk and some very fine print attached) that they have no intention of keeping. And while it’s true that these sorts of lenders will probably approve your loan application, it’s also a sign that they do not care about your ability to pay the loan back.
And a lender that doesn’t care about you paying your loan back is likely one whose products will trap you in a dangerous cycle of debt.
Avoiding the debt trap: Why “ability to repay” is so important.
Most of the time, a promise of “guaranteed approval” is going to come from a payday lender. These are lenders that offer short-term, no credit check loans, usually requiring nothing more than a postdated check made out to them for the amount loaned plus interest.
But isn’t that the great thing about these payday lenders? It’s so easy to get a loan from them! They wouldn’t want to give you a loan that you couldn’t afford to pay back…
Except that’s exactly what they do.
See, predatory payday lenders depend on your inability to afford the loan in the first place. Instead, they want you to either roll your loan over or pay it back and then immediately take out a new one–also known as “reborrowing.”
Either way, people end up taking out loan after loan, each time paying more and more money in interest, and never getting any closer to paying down the principal. It’s a vicious cycle of debt, with no end in sight.
And it’s also the backbone of the payday lending industry. According to a study from the Consumer Financial Protection Bureau, 75 percent of payday loan fees come from borrowers who take 10 or more payday loans in a single 12-month period.
Predatory lenders like these prey on people with bad credit scores who don’t have many other options. It’s not that they ignore a person’s ability to repay, it’s that people who flat out can’t afford these loans make for their best, most profitable customers.
Thes are the kinds of lenders that like to advertise with promises of “guaranteed approval.”
Skip no credit check loans. Try a soft credit check loan instead.
The fact of the matter is this: when you are applying for a no credit check loan, you are running a very high risk of encountering a predatory lender.
The reason for that is simple. People with bad credit who can’t afford a regular loan (or who don’t have the savings built up to deal with a financial emergency) are predatory lenders’ prime targets.
They lack other credit options beyond bad credit loans. They likely have low incomes, as well as a low level of financial literacy. They are exactly the kinds of people who can easily get trapped into a dangerous (but very profitable) cycle of debt.
But there’s another, better option out there. While a no credit check lender probably doesn’t care about your ability to repay, you can be certain that a “soft” credit check lender does.
What’s a soft credit check lender? Well, they’re a lender who does look at your credit history to see whether or not you can afford your loan.
Here’s the best part: a soft credit check won’t affect your credit. Soft checks, like the kind you make when you check your credit score, don’t show up on your credit report. Read more about soft credit checks in our post 5 Must-Know’s Before Applying for a “No Credit Check” Loan.
Sure, caring about your ability to repay does mean that a soft credit check lender is a little more likely to reject your application, but that’s the beauty of a soft credit check. You can apply for a loan without any fear that a rejected application will needlessly harm your score.
We should know. OppLoans performs a soft credit check on every application we receive.
So what are you waiting for?
Learn more about OppLoans, or apply for a loan today. And if you’ve had a bad experience with a no credit check lender, we want to hear from you! You can shoot us an email by clicking here or you can find us on Twitter at @OppLoans.