Payday lending has become a highly contentious issue in the UK, after huge criticism from consumers triggered stringent government regulations and a widespread crackdown. Even though we have now reached a point where interest rates have been capped within the sector, there is still criticism regarding the distribution of payday loans to students in the UK. An estimated 25% of undergraduate and postgraduate students in Britain own an average of £342 to payday lenders, which highlights the emotive nature of the sector.
Exploring Guarantor Loans: A Viable Alternative
As a result of this, a number of alternative, short-term lending options have emerged on the market in the last five years. The most prominent of these (and the one that has emerged as the most popular option recently) is the guarantor loan, which has a simple premise and offers some advantages to lenders. These loans are usually offered to individuals with poor credit, and are offered to applicants so long as they can find a reputable guarantor who is willing to assume responsibility for the debt if it is not repaid.
These firms are also different to payday lending outlets, as they offer higher sums of capital, extended repayment times and lower APR. In terms of the former points, reputable brands such as Trust Two offer anywhere between £1,000 and £75,000 to applicants, and this sum can be repaid over a period of months rather than weeks. With regards to the issue of APR, guarantor firms operate according to strict market regulations and charge an average rate of 39%, which is far more reasonable than traditional short-term loans and make it easier for individuals to repay them.
Are Guarantor Loans right for you?
As guarantor loans have become more popular and filled the void in the market created by the crackdown on the payday lending sector, they have also become a target for criticism. This is only to be expected, as any form of short-term lending becomes susceptible to scrutiny once it has entered the consumer mainstream.
As with any type of loan, however, your focus as a borrower should be on your own personal circumstances and the type of financial product in question. So long as you understand the nature of the loan and its financial implications, you can make an informed and responsible decision that enables you to remain debt free in the long-term.