If you’re living paycheck to paycheck, a large unexpected expense can cripple you financially. And if you have bad credit, your options to get short-term cash are limited.
As a result, many online lenders promote what they call guaranteed personal loans. The problem? They’re just another kind of predatory payday loan.
What are guaranteed personal loans?
Guaranteed personal loans target people who need cash now — specifically, people with bad credit (defined as a FICO score of 579 or less) who can’t qualify for a personal loan or unsecured credit card.
For example, you might see an ad online for personal loans with no credit check. Other lenders will tout their instant personal loans or same-day personal loans.
These loans are appealing because many of them don’t require a credit check. But don’t confuse the ease of getting the loan with the ease of paying it back. According to the Consumer Federation of America, these loans typically charge a 400% APR or higher.
Also, you often have just weeks to repay the debt. If you’re already living paycheck to paycheck with no cushion, your situation could get even more dire before you know it.
How much do guaranteed personal loans cost?
Say you need $500 to repair your car so you can get to work. A guaranteed personal loan with a 14-day repayment period and a $75 finance charge would result in a 391% APR.
Here’s how to calculate that number:
Step 1: Divide the finance charge by the loan amount (75 / 500 = .15).
Step 2: Multiply that answer by the number of days in the year (.15 x 365 = 54.75).
Step 3: Divide that answer by the term of the loan (54.75 / 14 = 3.91)
Step 4: Move the decimal to the right two places, giving you an APR of 391%.
Based on their terms and predatory nature, guaranteed personal loans are essentially payday loans in disguise.
Consider these 5 alternatives to guaranteed personal loans
If you need cash fast but can’t qualify for a personal loan with a low interest rate, these options offer better terms.
1. Payday alternative loan
If you have short-term cash needs, guaranteed personal loans are an expensive solution. Instead, check with your local credit union to see if it offers a payday alternative loan (PAL).
Although PALs share some terms with guaranteed personal loans, the costs couldn’t be more different — the maximum APR on a PAL is 28.00%. Other terms include the following:
- You can get a loan between $200 and $1,000.
- Repayment terms range from one to six months.
- There’s a maximum application fee of $20.
- You must be a member of the credit union for at least one month to qualify.
- You can’t roll over one PAL into another.
The main drawback to PALs is the membership requirement. If you need cash now, you don’t have time to join a credit union and wait a month. If you’re already a member of a credit union that offers PALs, though, they offer a less expensive solution to your problem.
2. Personal loan from family or friends
Loved ones usually are willing to help you in a time of need if they think they can trust you to repay the loan. But borrowing money from family or friends can strain a relationship if payments don’t go smoothly.
If you consider yourself trustworthy, borrowing cash from a family member or friend can be a fast way to get cash and avoid expensive fees and interest. If you go this route, be respectful of their terms and responsible with repayment.
3. Credit card cash advance
If you have a credit card that allows cash advances, you can take your card to the ATM and make a withdrawal. Keep in mind, though, that your cash advance limit is often lower than your overall credit limit.
Credit cards typically charge a higher APR for cash advances than for regular purchases, and interest starts accruing immediately. Still, CreditCards.com pegs the average cash advance APR at 23.68%, which is much lower than the average APR for guaranteed personal loans.
4. Paycheck advance
Your employer might be willing to give you an advance on your paycheck if you’re dependable and in good standing. Note, however, that you still might have a financial shortfall before your next paycheck. Do the math with your expenses to make sure it’s worth it.
Plan out your upcoming expenses and consider any other income that might come in that could help cover the costs. Make sure you’ll still have enough cash to pay for necessities such as rent, utilities, and groceries.
5. Emergency assistance
For many people, the biggest problem with unexpected expenses is the fact that you now don’t have enough money to pay for groceries, rent, and other necessities.
Many local churches and community organizations have assistance programs to provide help to people in your situation. For example, the Low Income Home Energy Assistance Program (LIHEAP) provides assistance with some utility costs.
Most of these organizations are targeted to low-income households. For example, LIHEAP caps eligibility at no more than the greatest of 150 percent of the federal poverty guidelines (FPG) or 60 percent of your state’s median income. Also, your income can be no less than 110 percent of FPG.
To see what kinds of services are available in your area, do a quick internet search and reach out to your community leaders and neighborhood support groups.
Prevent the need for guaranteed personal loans with an emergency fund
Once you have enough cash to cover your emergency and other needs, work toward building an emergency fund to give yourself a safety net in the future.
If you don’t have much left over at the end of the month, start small. A few dollars here and there can make a big difference the next time your car or water heater breaks down.
As you prepare for future emergencies, your reliance on guaranteed personal loans, payday alternative loans, or other short-term loans will disappear.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 5.64%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.28%3||Undergrad & Graduate|
|1.89% – 6.77%4||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 5.61%5||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews! |
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.