A Complete Guide to Guarantor Loans - Business Media Group

A Complete Guide to Guarantor Loans

This article has all the information you need on guarantor loans. From how they work to how to qualify – we’ve got it all!

Back before the time of computers, digital data, the internet and credit scores, traditional lenders would grant loans based on trust. If you could provide someone to back your loan application, you could receive money fairly quickly. But now, it’s all numbers. Your entire credit history is at the hands of every bank and high street lender. Whilst your try and maintain a good credit score, sometimes the difficulties of life can creep up on you. Then, you find yourself in need of money but with bad credit, it seems almost impossible to land a loan. Which means every fair rate on a loan or credit card is unavailable to you.

Luckily, guarantor loans have come back, and they’re here to stay. A more traditional way of lending, guarantor loans are ideal loans for people with bad credit. But, what is a guarantor loan? And how does it work? We’ll be bringing you all the information you need on guarantor loans. With impartial advice on how they work, what the costs are and much more. Ready to learn about loans? This is guarantor loans, 101.

The Basics

In their most basic form, guarantor loans are an alternative way of borrowing money when your credit score isn’t great. Bad credit impacts the rates you receive on loans, mortgages and credit cards, so it isn’t ideal. That’s because your credit score is your financial footprint. Through it, lenders can track your credit history – every missed bill or previous loan you’ve had. It gives lenders an idea of what you’re like as a borrower and how reliable you are at making payments. This gives lenders an idea of if granting you a loan is worth investing in (how else would loan companies make their money). The worse your credit score is, the more interest you’ll incur on a loan or credit card.

So, it’s important to know where you stand. You can view your credit score on websites like ClearScore, Experian and Noodle. Free sites like these can also estimate what kind of rates you’re going to get on loans or credit cards. For a guarantor loan, you credit score is not taken into account. When you apply for a loan, you will not need to provide your credit score. However, you will need a guarantor.

Applying for a Loan

To qualify for a guarantor loan, you need to provide a guarantor with your application. And what do you need to be a guarantor? Well, they can be almost anyone. A friend or family member, landlord or even your boss. They also need to be between the ages of 18-78, be a homeowner and have good credit. They need to co-sign the application with you to agree that should you be unable to make any repayments on your loan. You’ll pay back your loan in monthly instalments, but if you cannot afford to make one, your guarantor will be charged instead.

You’ll also need a stable income. Be it employed part time, full time or self-employed, you will need to provide evidence that you can pay back the loan yourself. Most loan companies will not accept you if you have no evidence of employment. Loan repayments are the responsibility of the lender, not a guarantor.

Dependent on which loan company you choose, you may have to pay a deposit/upfront fees. However, some companies do not charge you at all. However, interest rates on guarantor loans are fixed, so over the loan repayment period, you will never pay more than the initial quote. Loan amounts are usually between mid to large amounts with guarantor loans – anywhere up from £1,000 to £15,000. Also, the loans are repayable over 1-5 years. Spreading out payments make the loan more affordable than short term loans. Having a guarantor, guarantees the loan is repaid in full – which means no matter your credit score, you could qualify for a guarantor loan. These types of loan have become more and more popular for those with bad credit, due to the lower interest rates compared to other types of poor credit loans.

Guarantor vs. Payday

Bad credit loans aren’t in short supply, but it’s important to know the difference between guarantor loans and payday loans. While both are unsecure loans, meaning they do not ask for property or possessions as collateral, payday loans have significantly higher interest rates than guarantor loans. Sometimes interest rates are as high as 1000% APR, but guarantor loans have around 40 to 50% interest rates. Whilst payday loans have a much shorter repayment period than guarantor loans, which makes them costlier, guarantor loans have repayment periods of 1-5 years. Below is a comparison chart of guarantor loan companies and their APRs.

Comparatively, the average APR for a guarantor loan is significantly lower than typical payday loan rates.

Types of Loan

Whilst guarantor loans are ideal for those with bad credit, it’s important to understand what type of loan it is. A guarantor loan is an unsecure loan, which means it is relatively risk free. Your property and/or possessions are put up against your loan if it is a secure loan type. However, unsecure come with less risk, and are usually for smaller amounts.

Your Loan

Guarantor loans are personal loans, but can be used by the self-employed as a business loan too. Your loan can be used for pretty much anything, so long as it’s legal. Many use their loans for wedding costs or car finance. Whilst it can also be used for debt consolidation, holidays or even a business loan for the self-employed. It’s your loan, so it’s your choice. Most loan companies can approve and transfer funds into your guarantor’s account within 24 hours, sometimes longer, but fast approval is one of the added benefits of guarantor loans.

The Bad

Every loan has their downside however. Guarantor loans are not the best loans for everyone. Whilst interest rates are lower than other bad credit options, they are far from the best ideal. With interest rates of around 50% means back you’ll be paying back half of the amount, on top of what you initially borrowed. So, before taking out a loan, it is important to seek independent financial advice before considering borrowing any money. And check your credit score! Guarantor loans are only ideal for those with bad credit, if you’re credit is good, it is advisable to seek other lending alternatives.

The Good

Fast pay-outs and lower interest rates are but some of the benefits of guarantor loans. They are usually for larger amounts that payday loans and are somewhat less expensive to take out in the long run. Most have a much lower representative APRs than payday loans, and guarantor loans are ideal for those with bad credit.

You should always seek independent financial advice before taking out a loan. Borrowing money that you cannot afford to repay can leave you with serious money problems, so always seek impartial financial advice. Guarantor loans are personal loans, which can be used for almost anything

Author Bio:

Robert Smoker, the CEO of TFS Loans, has an extensive work history within the finance sector. Having worked with a prestigious Private UK bank for over 36 years, Robert has had many head and executive financial roles under his belt since the late 70s. His extensive knowledge of the financial and loans sector carries into his writing, creating content for financial blogs and more.

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