The Complete Guide to Guarantor Loans
Did you know that nearly 8.3 million UK adults are in debt? If you are one of them, it can seem impossible to get a loan when you really need it. But did you know that it can be done with a little help?
All you need is someone to guarantee you will pay the money back. Read on as we give our essential guide on guarantor loans.
What Is a Guarantor Loan?
A guarantor loan is a type of personal loan. It differs in that the person borrowing has a guarantor to offer financial backing. Should the borrower default or not pay the loan, then the guarantor takes responsibility for the payments.
Having a guarantor means more security for the lender. A guarantor has to be in good financial standing with a solid credit history.
Benefits of a Guarantor Loan
These loans let you take out larger amounts, regardless of your credit history. This even applies if you have no credit history at all.
Rebuilding credit history is a great advantage of a guarantor loan. As the loan is taken out using the guarantor’s previous credit history, the borrower does not have to have a strong financial past. However, by making regular repayments, they will still benefit from the boost to their credit profiles.
Cons of Guarantor Loans
Guarantor loans generally have higher interest rates than ordinary personal loans. Most people would be likely to use them when they have a low credit score or none at all. For this reason, many parents offer to be guarantors for their children who need money.
If repayment problems occur, the loan can place strains on personal relationships. This is why it is important for the guarantor to know they can make repayments should issues arise, and be confident that the borrower will do everything they can to make payments on time.
Being a Guarantor
If you are asked to be a guarantor, you are taking on a big responsibility. Firstly, you should know the financial background of the person. Make sure they are trustworthy and will pay the loan back.
Consider that a default on the loan by the borrower can impact your own credit history. The loan is approved based on your credit rating, and as such, any negative influences impact this. In fact, the credit score of both the guarantor and borrower will be impacted, making it hard for them to get loans in the future.
Finally, you should make sure you know all the loan details. This includes tenure, interest rate and the loan amount. Prepare for the worst possible scenario and see if you would be able to pay this from your budget should they default on a loan.
Guarantor Loans vs Payday Loans
Guarantor loans and payday loans have a number of distinct differences. The main difference is where the security comes from if the borrower defaults. With the guarantor loan, it comes from the guarantor. With a payday loan, it comes from the borrowers next wage payment.
Payday loans are for smaller sums. They are paid back over shorter time periods, meaning they have much higher rates of interest. However, they are generally easier to apply for and acquire.
Guarantor loans are more like standard personal loans. They have long term payments and are for higher amounts. They can be used for anything you want, including improving the home, buying a car, consolidating other debts and rebuilding your credit history.
Guarantor Loan Companies UK
Below are a list of companies that offer guarantor loans in the UK. Terms and conditions change frequently, so make sure you check the company website to see what the current offer is.
This is one of the top companies, offering loans from £1000 to £10,000. Loans can be paid back over one to five years, with a rate of 29% fixed APR on one of their better offers. Both the borrower and guarantor must both be homeowners for their best deals, with lesser rates if only the guarantor is one.
1Plus1 lets you borrow smaller amounts than many other companies, going from £500 up to £10,000. A homeowner or tenant guarantor is required. However, they do accept applicants with bad credits and CCJs. Current APR rates are at 47.8%.
TFS Loans offer much higher amounts when it comes to guarantor loans. They will land from £2000 up to £15000 depending upon the circumstances. APR is typically around 44.9%, reducing to 29.9% when borrowing higher amounts.
Bad credit history applicants, CCJs and defaults are accepted, so they can help consolidate debt. They advertise as having a quick approval process with no hidden set-up fees.
An online direct lender with no upfront fees, Buddy Loans specializes in guarantor loans. You can borrow anything from £1000 to £10,000, with payment periods ranging from twelve to sixty months. Their rate is a representative 49.9% APR.
Choosing a Guarantor Loan
When looking for guarantor loans, check the small print. Many rates and loan amounts may look the same, but they could have very different conditions. Always borrow within your means.
If you think a no guarantor loan may help you, then make Cashfloat your first stop. We are the UK’s leading unsecured direct lender. Click here to apply and get your finances arranged, starting today.
Who Can Be a Guarantor?
Guarantors must have no financial links to the borrower, such as sharing a joint bank account. They must also be over the age of 21.
A guarantor will also have their own credit history assessed and must be the owner of a UK bank account. Their income must be sufficient to make repayments on the loan. Some lenders require homeownership as a qualifying criterion.
If you are looking for a guarantor, then choose someone you know well. Family members, close friends and colleagues are ideal candidates.