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Keep in mind that if you co-sign a loan, it will show up on your credit report. When you go to apply for your own loans down the line, your debt to income ratio may be so high that a lender might not want to give you the credit you need. Co-signers, take note of this guaranteed loans advice: If you are the co-signer on a loan that has been satisfactorily paid over an extended period, you can request that your name be taken off the loan and that the lender report it to the credit agencies. If you co-signed a mortgage, it gets more complicated in that the loan may need to be refinanced. However, it's worth the extra effort since it will remove thousands of dollars liability from your credit report—and your shoulders.
If you are a first-time borrower or one who has negative information in your credit report (or bad credit), your lender may prefer a little more security before they shell out the dough. Sometimes a lender will require you get a co-signer to guarantee your loan, this known as a guaranteed personal loan. What a guaranteed loan means is essentially that another person agrees to be a co-borrower. That person's credit history is considered by the lender when deciding whether or not to make the loan. If the loan is made, that person is liable for the debt in the event that you become unable or unwilling to pay it according to the agreed upon terms. Parents used to co-sign credit card applications for their children to help them establish credit and still frequently co-sign their children's student loans.
If you have a short-term cash crunch and you have a credit card that offers a low fixed or introductory rate, you may be better off charging your needs instead of taking out a guaranteed online personal loan. Because personal loans are unsecured, the rates tend to be higher than other types of loans even at traditional lenders, much less at payday lenders. Want some guaranteed loans advice? If your credit card rate has a lower rate than what you can get on a loan, use the credit card. HOWEVER, you must pay the card off before the introductory rate expires. If there is no introductory rate, you must pay the card off within two years. That means paying much more than you would if you were paying the minimum rate alone. Figure out what your monthly payment would have been for the loan, and pay that amount or more each month to pay the debt off.
If you have poor credit there are finance companies that specialize in guaranteed bad credit personal loans. Most, however, do not deal in unsecured loans. Aside from paying high interest rates, you may be required to put up personal property as collateral for the loan. Collateral is personal property that the lender can seize and sell in the event you cannot or will not pay the loan according to the agreed upon terms. Some, such finance companies, will accept personal computers, assuming it is a newer model, as collateral. Most, however, prefer a clean car title. Before you put your car or computer on the line, think hard about whether you can truly afford to be without it in the event that it is seized.
Guaranteed personal loans, or those that require a co-signer to be approved, can be risky business for the co-signer. Just because someone needs a co-signer isn't necessarily a sign that they are not creditworthy. It may be that they have no demonstrated credit history and so the bank cannot make an informed decision one way or the other. On the other hand, it could definitely mean that the person is a risky bet. Here's some good guaranteed loan advice: Before you co-sign a loan for a relative or friend—each of which can be fraught with hassles down the road—make sure you consider the person's character, ability to make the payments, and whether you could honestly afford the debt if the borrower can't or won't make the payments. Even though you will not benefit from any of the proceeds of the loan, you will nonetheless be responsible for paying it back in full if your friend or relative bails on you.
If you are in the market for a personal loan but the lender told you that you need a co-signer, you should ask yourself if you really should be taking out this loan. If a reputable lender won't give you a loan unless you have a co-signer, that's a sign that you may be in over your head. Will the bank loan you a smaller amount without a co-signer? If so, consider this alternative. Unless you absolutely cannot afford to wait, you should consider putting off your purchase until you can either pay cash for it or can get the credit on your own. If you need a co-signer because you don't have a credit record on which the lender can base a decision, find out what specific actions the lender would consider as positive steps toward building your credit—and then do them.
Online lenders come in all shapes and sizes. Some are totally reputable and do business fair and square. Others are sham shops set up to separate fools from their money. If you are considering a guaranteed online loan, you need to do some "due diligence." Due diligence means you need to check up on the company you are considering doing business with. How long has it been around? Does the site include a contact address and telephone number? If so, verify them with information. Is it a member of the Better Business Bureau's online certification program? If so, check with the BBB to make sure there are no complaints against the company. Is the company asking you to pay fees up front before rendering any services? If so, go somewhere else. Are the interest rates being offered in line with going market rates? If not, go somewhere else.
In the traditional sense of the term, a guaranteed loan is a loan that is underwritten and managed by a financial institution and which a government agency has guaranteed to pay if the borrower defaults. To default on a loan means you do not make payments on time or, in some cases, at all. Examples of these guaranteed loans are small business loans that are guaranteed by the Small Business Administration and home mortgage loans that are guaranteed by the Veterans Administration. The term guaranteed loan has also come to mean an unsecured personal loan that is "guaranteed" by a co-signer. The co-signer promises to pay the debt if the borrower defaults.
If you are in the market for a guaranteed personal loan or other type of loan, you may want to check out FirstGov.org. This site is a clearinghouse for tons of useful information from federal agencies and includes information on all sorts of consumer topics, including credit. There are countless publications that you can order for little or no money. Most are also available as PDFs for immediate download. Of particular interest to those considering taking out personal loans is the publication No. 571, Personal Financial Choices. The booklet explains the basics of Chapter 7 bankruptcy, how to set up a sound financial plan, how to rebuild your credit, and much more.
If you have agreed to co-sign a loan for a friend or relative, there are two things you can do to minimize your risk. First, ask the lender to agree in writing to notify you if the borrower misses even one payment. That way, you can try to manage the situation before it snowballs. Second, ask if you can limit yourself to the value of the loan itself. That way you won't be held responsible for late charges or other collection fees. If the lender agrees to this, make sure you get that in writing as well.
|Jennifer Mathes, Ph.D.|