Looking to learn more about guarantor loans? You’re in the right place. Find out all you need to, right here.
Whilst you may or may not have heard of the term before, in the past decade or so, this type of loan is becomingly an increasingly popular option. Guarantor loans are a different kind of loan many choose to use because of the requirements of it, but we’ll go into greater detail further down. If you’re here, you’re probably looking to learn about guarantor loans, right? Well, luckily for you, we’re going to tell you all about them.
In this post, we’re looking into guarantor loans. Everything from what they are, how they work and why they’re becoming an increasingly popular option for many borrowers seeking a loan. So, without further ado, let’s get into it, below.
What is a Guarantor Loan?
Picture a time before computers, before the internet and before universal credit scores. Well, this was when guarantor loans were common place in the world of lending. Before everyone had their own digitised credit score, banks and lenders would give out loans based on one thing – trust. Yes, if you had someone on side who could back your application, stating that you would repay the loan, it would be yours. However, it’s not the most effective way of lending. So, came credit scores which allow lenders to establish a borrowers’ ability to repay a loan. But guarantor loans are still a thing.
They work in a similar way. If your credit score is less than ideal, and you’re in need of a loan, then you can apply for a guarantor loan. You’ll need to present a guarantor along with your application, someone who has good credit, is a UK homeowner and meets other criteria (age and income vary from lender to lender). All you guarantor has to do is sign and agree that should you be unable to make any repayments on the loan, they will cover the cost for you.
What this does is negate the need for you, the borrower, to have a good credit score. Because, your guarantor guarantees that the loan will be repaid. It’s a great way to borrow money if your credit isn’t great.
Bad Credit Loans
Almost once in everyone’s life, they’ll end up with a bad credit score. And, it’s not ideal. Because it significantly limits your borrowing options. Your credit score affects your ability to not just get a loan, but a mortgage, credit card and other financial products that require you to make repayments. What normally happens is if your credit is bad, either your application will be rejected, or lenders will offer you a higher interest rate to compensate for your bad credit score. However, this is where ‘bad credit loans’ come in.
Payday loans, you’ve probably heard of them, but they’re one form of bad credit lending. Most payday loan companies won’t require a credit check in order to qualify, but these loan amounts typically only range from £100 – £1000. But, if you have bad credit and need a larger loan, guarantor loans are the way forward.
Guarantor loans usually cover any amount between £1000 – £10,000 (with one UK lender even granting loans of up to £15,000. Unlike payday loans, guarantor loans are repaid over a period of 1 – 5 years. However, their interest rate is usually higher than other loan types. Guarantor loans can range anywhere between 39 – 69% APR. Whilst this isn’t the cheapest loan available, it’s one of the fairest options out there for those with bad credit.
Why Guarantor Loans?
With a higher APR, you may be wondering why guarantor loans are an option many consider. Well, if your credit is bad and you need a loan, you’re stuck between a proverbial rock and a hard place. On one hand, guarantor loans have a higher APR then other loans, but these other loan options aren’t open to those with bad credit – which means that you can’t actually get the better rates.
But what if guarantor loans could help rebuild your credit score? Yes, that’s right, they can. By taking out a guarantor loan, and keeping up with the monthly repayments, you could actually begin to improve your credit score – which means, more loan options in the future! Good credit means better lending options. So, many consider it a ‘win-win’. You can secure the funds you need whilst also working on improving your credit score too.
Also, guarantor loans have a fairly fast pay out (again, this is dependent on the lender). Some lenders can pay out a loan within 24 hours! If you and your guarantor complete all the paper work quickly, you could see yourself getting a loan faster than you imagined. There are no upfront costs for guarantor loans either!
Guarantor Loan Uses
Guarantor loans are personal, unsecured loans. The unsecured part means that your loan will not be secured against anything – like your house, car, or possessions. What we mean by a personal loan is that it can be used for pretty much anything. Yes, business loans must be used inside a company and mortgages are solely for houses, but a personal loan is for you to use as you see fit – just make sure it’s legal! Many used guarantor loans are debt consolidation loans, in order to pay off other existing debt and focus it into one repayment. But many borrowers use their loans for home improvements, car financing and even as self-employed loans for small businesses.
If you’re thinking about a guarantor loan, it’s always advisable to seek independent financial advice. Taking out a loan you cannot afford to repay can land you in serious money troubles, so always speak to an impartial financial professional before taking out a loan. Guarantor loans can be a useful option if your credit is bad and can help improve your credit over time.