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- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Introduction To Guaranteed Loans
When a loan is guaranteed by a third party or when they assume the debt obligation in the event that the borrower defaults it is called a guaranteed loans.
A government agency guarantees a guaranteed loan by purchasing the debt from the lending financial institution and taking the responsibility for the loan.
The Working Of A Guaranteed Loans
When a borrower is not qualified for a regular bank loan then a guaranteed loan agreement is made.
A guaranteed loan is helpful for people who need financial assistance to secure funds and are otherwise not qualifying to acquire them.
And the guarantee means that the lending institution will not be subject to excessive risk in issuing these loans.
The Different Types Of Guaranteed Loans
There are many types of guaranteed loans. A few are safe and reliable ways to raise money, and others involve risks and exorbitantly high-interest rates.
Guaranteed Mortgages
The first type of guaranteed loan is guaranteed mortgage where the third party guaranteeing these home loans is either the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA)
Homebuyers who don’t qualify for a conventional mortgage and are considered risky or don’t have an adequate down payment and require to borrow the complete amount of the home’s value may get a guaranteed mortgage.
FHA loans need the borrower to pay mortgage insurance as a protection to the lender in case of non-payment by the borrower on their home loan.
Federal Student Loans
A federal student loan is another type of guaranteed loan, which is guaranteed by an agency of the federal government.
These are the easiest student loans to qualify for because there is no credit check, and they also have the best terms and lowest interest rates as the U.S. Department of Education guarantees this loan with taxpayer dollars.
In order to apply for a federal student loan, the applicant must complete and submit the Free Application for Federal Student Aid, or FAFSA, for every year that the borrower wants to remain eligible for federal student aid.
After the student leaves college or drops below half-time enrollment that is when the repayment on these loans begins. A few loans also have a grace period.
Payday Loans
The payday loan is another type of guaranteed loan. When a borrower takes out a payday loan, their paycheck becomes the third party that guarantees the loan. the borrower gets a loan from a lending organization, and they write the lender a post-dated check which the lender encashes on that date.
Sometimes lenders need electronic access to a borrower’s account to remove out funds, but it’s not a good idea to sign onto a guaranteed loan under those circumstances, especially when the lender isn’t a traditional bank.
The challenge with payday loans is that they create a cycle of debt, to people who already are in tight financial situations it can cause further problems.
This situation can arise when a borrower doesn’t have the funds to repay their loan at the end of the two-week term.
In such a situation, the loan adds up into another loan with a whole new round of fees. Interest rates can be as high as 400% or more and the lenders will charge the highest rates allowed by the local laws.
Some unfair, immoral lenders may even attempt to cash a borrower’s check before the post date, leading to a risk of overdraft.
Unsecured personal loans are an alternative to payday guaranteed loans these loans are available through local banks or online, even credit card cash advances having high rates can save more money compared to payday loans, or one can choose to borrow from a family member.
Conclusion
A guaranteed loan is a type of loan in which if the borrower defaults then a third party agrees to pay.
Borrowers with poor credit or little in the way of financial resources use a guaranteed loan because it allows financially challenged candidates to qualify for a loan and assures that the lender won’t lose money.
Guaranteed mortgages, federal student loans, and payday loans are all different types of guaranteed loans.
Guaranteed mortgages usually are backed by the Federal Housing Administration or the Department of Veteran Affairs.
The U.S. Department of Education backs federal student loans. The borrower’s paycheck guarantees payday loans.
