A guaranteed loan, also often referred to as a guaranteed form of credit, provides assurance to a lender that their loan will be repaid by a third-party entity if the original borrower is unable to fulfill their financial obligations. This type of loan is especially beneficial for borrowers with poor credit or limited financial resources – as it gives them access to vital sources of financing which may otherwise be out of their reach.

In the case of guaranteed mortgages, for example, such loans are typically backed by the Federal Housing Administration or the Department of Veteran Affairs. This guarantees to the lender that if the borrower is unable to make their payments, then the government will step in to cover the costs. Meanwhile, federal student loans are guaranteed by the Department of Education and payday loans are typically guaranteed by the borrower’s paycheque. Having this assurance makes lenders more likely to approve this type of loan.

For borrowers, there are a few disadvantages associated with a guaranteed loan, particularly when it comes to the interest rate. Lenders typically charge higher interest rates on these types of loans as a risk-mitigation measure. Additionally, the terms of the loan may be more onerous than those of a traditional loan - as lenders often require a co-signer or a lien on property.

In a nutshell, a guaranteed loan is a type of loan which allows borrowers with weak credit or limited financial resources to gain access to vital financing. It is a useful tool for borrowers, though it does send lenders a way to mitigate the risk of the loan by charging higher interest rates. As with any type of loan, borrowers should consider the terms, fees and interest carefully before making a decision.