Nothing’s guaranteed anymore these days. Least of all loans. Even the financially well-off are frequently struggling to convince banks to lend them money. For some bankrupts, meanwhile, access to much-needed cash has been virtually cut off completely. The only almost-guaranteed loans you’ll find today are mortgages on houses, since these tend to appreciate in value over time. Other than that, however, times have become tough.
In our expert guide to guaranteed loans, we’ll explain to you why, exactly, things have become this hard – and how you can nonetheless find guaranteed loans when looking for car finance.
Securing a loan: Why it’s so hard
If you’re looking for guaranteed loans, you’ll first need to understand why it has become so hard to find them. Here are the three most important explanations:
The global financial crisis has put even some of the biggest banks under immense pressure. What’s more, banks have rightly been criticised for being too lenient for many years in providing cheap cash and creating a dangerous bubble. As a result, there is next to no leeway for risk and many bank employees have zero freedom even if they would love to provide you with a loan. As a result, guaranteed loans have all but disappeared completely.
Most people still think of banks as the most important credit providers for all investments, from big to small and for all kinds of products. In reality, most banks are mainly interested in two things only: high-volume deals with major corporations and real-estate mortgages.
After many years of borrowing and spending, many UK households have racked up considerable debt. Credit ratings have taken a dip, which has made it even harder to find a loan.
Guaranteed loans: Are they safe?
As financing has become harder, the guaranteed loans segment of the market has exploded. A simple search for ‘guaranteed loans’ on google yields 140.000.000 results. Few of these are worthy of your attention. Some are outright dangerous.
Still, guaranteed loans for those with poor credit are not bad by default. On the one hand, the industry has diversified. You can now chose between a payday loan and a bad credit auto loan, between using a credit card and an application with a credit union.
Secondly, new regulations have been introduced to bolster consumer safety. Especially payday loan lenders are bound by various limits on their loan rates and conditions. These have made it all but impossible for them to request the aggressive loan rates that marked the early phase of the industry.
Still, it is important to stay alert.
In an excellent article for The Balance, Justin Pritchard provides valuable insight into the dangers of guaranteed loans. There are two main dangers, he argues: Losing money, because you are being scammed. Or paying outrageous interest rates.
Both problems can be avoided, he argues, if you apply some common sense to your strategy:
“Lenders are not in business to lose money, so they can’t guarantee that they’ll lend to anybody. Some lenders are willing to take more risk than others, but they still need to know something about your finances and take sensible risks. If you have no (or bad) credit history, no income, and no assets to use as collateral, how can a lender be confident that they’ll get their money back?”
In some forum discussions, those with bad credit often express a bleak outlook towards ever getting a car loan with a professional company. Their pessimism is understandable. But things are not really that bad.
Pritchard recommends to keep a few important points in mind when looking for bad credit loans:
Don’t ever borrow from lenders sending you an email out of the blue or giving you an unsolicited phone call.
If a financial institution promises to give you money without any sort of credit check whatsoever, the deal is probably too good to be true.
Never ever accept upfront fees. Things may be different with a mortgage. But with an auto loan, upfront fees are a sign of unprofessional business practises.
Don’t send transfer money from your bank account to the lender’s by Western Union or any similar service. Says Pritchard: “If you apply for a loan, you’re trying to get money—so why do you need to send money?”
Finally, you should be aware of the maximum interest rate that a lender can ask. If the offer exceeds this, don’t accept it.
As long as you keep these aspects in mind, you stand a decent chance of getting a fair loan even with a less than perfect credit score.
Payday loan: Friend or Foe?
Money Saving Expert Martin Lewis has called payday loans “an expensive nightmare”. Maybe that is putting it too drastically. But he has a point: A payday loan is not a god way to finance your car.
The reasons are simple: A payday loan can be useful as a short term loan to plug the (occasional) hole in your bank account. Strictly speaking, they’re not even term loans at all. Rather, they allow you to borrow money for a fixed fee.
As soon as you start treating them as a personal loan, monthly payments will soar. Don’t even think about using one to pay off your car credit.
What about a Credit Union?
Credit Unions are almost like banks, only better. Because they are owned by their members, they take the needs of lender into consideration far more than a bank ever would. Many credit unions have a maximum interest rate for their installment loans. Usually, it will stand at just under 20%. This has made credit unions an excellent alternative, especially if you’re looking for a car loan.
At the same time, a car loan with a credit union is definitely not for everyone. It involves the same criteria that a bank would use. These are not guaranteed loans by any means. Your credit score and credit history will determine, to a large degree, the APR and monthly payments. And for those with poor credit, the quest to find suitable term loans remains as hard as ever.
What about a Credit Card?
Paying for your car by credit card has been suggested time and time again. The idea behind this is that credit card interest rates are not as high as you’d expect them to be. Plus, paying by credit card means you won’t have to go through the cumbersome application process you’d find at a bank or credit union. Instead of waiting for loan approval, you can just go ahead and buy the car. And if you pay off your debt without fail each month, you can actually improve your credit history while you’re at it.
The downside is that most regular installment loans tend to be cheaper than a credit card. The reason is simple, as finance magazine Pocket Sense points out: “If you use a credit card to make a car payment, you’re essentially paying interest on top of interest; the institution financing your vehicle is charging you interest, and the credit card company is charging it as well. In the big picture, this doesn’t make for smart financial planning.”
And besides, if you have a poor credit rating, it’s unlikely you’ll be able to pay off the car in full using just one credit card. Which makes things far more complex than they should be. And if you default on a payment, you’re in even deeper trouble.
The conclusion is simple: A credit card is not the best way to finance your vehicle.
Bad Credit Loans
The terms bad credit loans, guaranteed loans and no credit check loans are often used interchangeably. They are not strictly speaking identical, but they do have one thing in common: These are loans that target those with a patchy credit history and who can can not get a personal loan with a bank.
In practise, all of them are based on the following aspects:
The application procedure is significantly simplified and sped up.
Poor credit is not by default a reason to reject your application. As Nerdwallet puts it: “These companies take into account your credit scores and history when deciding whether to loan you money, but they also have more flexible requirements than banks do.”
The APR tends to be high, whereas monthly payments tend to be low. A bad credit loan is therefore usually longer term, rather than a short term loan.
A bad credit loan can be an okay choice. Just keep our expert recommendations at the end of this article in mind.
With all of the above in mind, here are a few of the best expert recommendations on getting a great deal:
Guaranteed loans Recommendation #1
Don’t speak to banks, speak to specialised car dealers. They will be able to give you far more personal offer, understand the situation you’re in and, very often, provide you with a better rate.
Guaranteed loans Recommendation #2
Clean up your debt and verify your credit rating. The better it is, the better your deal with be. If your credit rating should look unfavourable, there are great steps on improving it, so get to know more about the topic.
Guaranteed loans Recommendation #3
Used cars have many advantages over new ones. Because of the quick depreciation of new models, the price of a two-year old vehicle may have gone down considerably, while the vehicle itself may feel brand new. Also, chances of success are higher when it comes to financing,
How we can help
At Concept Car Credit, guaranteed loans are one of our specialities. We can’t promise you your loan application will be successful. But we welcome everyone to give us a call or apply using our online form, regardless of your credit history or score. If you’re looking for car finance for bad credit, we’d love to talk to you. We look forward to your call – or your visit at our Manchester salesroom.