Is Guaranteed Approval A Real Thing?

If you have bad credit, then your lending options will be limited. A credit score under 630 means that most traditional lenders are unlikely 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 do not check your credit score before issuing you a loan. For someone who has bad credit, a no credit check loan might sound like just the ticket!

If you see a lender advertising “guaranteed approval” for their no credit check loans you should be careful, because “guaranteed approval” is not a real thing. Promises like these are the hallmark of predatory lenders that may lead you to 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 is that it simply isn’t true. A lender that gives loans to anyone who applies will not be in business very long. All lenders have 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 these types of loans is a functioning bank account. This is usually true for payday lenders, who use a postdated check to “secure” your loan. For some of these lenders, as long as you have an account and a pulse, they will gladly lend you money.

However, if you’re a member of one of the 5.9 million U.S. households that don't have a bank account (known as “the unbanked”), you wouldn’t qualify 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 grabs your attention, and it gets you to click on their ad or walk into their storefront.

If rates are high enough, predatory lenders may be able to make money even if many borrowers can't repay the full loan.

Avoiding the debt trap: Why "ability to repay" is so important.

Promises of “guaranteed approval” generally come from payday lenders. 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.

Predatory payday lenders depend on your inability to afford the loan in the first place. Instead, they want you to either roll over your loan or pay it back and then immediately take out a new one, also known as “reborrowing.”

People end up taking out loan after loan, paying more and more money in interest each time, and never getting any closer to paying down the principal. It’s a vicious cycle of debt with no end in sight. 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 prey on people with bad credit scores who have limited options. It’s not that they overlook a person’s ability to repay, it’s that people who can’t afford these loans make for their best, and most profitable customers.

These are the kinds of lenders that may advertise with promises of “guaranteed approval.” It is advisable to avoid them at all costs.