Here are the benefits and pitfalls that you need to know before taking out any type of Guarantor Loan:
For once you sign that loan agreement there is no turning back; for it is very easy often to get into a loan agreement, and to often too difficult to get out. There are lots of scams out there and sometimes it is difficult to know the difference. So what do you need to know before taking out a Guarantor Loan?
- You can get a loan even if you have a bad credit rating
The way a Guarantor Loans works, is that you are required to find someone with a good credit rating to be your ‘backer’ and provide the lender with a guarantee that if you do not pay back the loan then they will. Great people to become your Guarantors are friends and family for they know and trust you. So the reason you are able to get a loan even if you have a bad credit rating is that the lender is getting their security from your guarantor. Typically your guarantor will need to be a home owner, though for smaller loans this is not a requirement. More details on whether your guarantor needs to be a homeowner further down within this article.
- A Guarantor Loans Is NOT a PayDay Loan
Let’s just clear this one up at the beginning; the Guarantor Loan is NOT a Pay Day Loan. The Pay Day loan has been receiving a great deal of bad press for very good reason, they charge extremely high interest rates causing the most vulnerable to get into a cycle of deeper and deeper debts. Guarantor Loan and Payday loans are completely different types of loan. The guarantor loan provides an affordable interest rate with affordable repayments.
3. It is a return back to the old fashioned type of loan
In the ‘old days’ a real human being would make a decision as to whether or not you were suitable for a loan and could afford to pay it back. Computers and credit scores took over and ‘common sense’ went out the window. Most of the UK’s guarantor loan companies have real people who decide whether or not you are suitable for a loan. So gone are the days of “computer says no”, common sense is back again!
4. You will have to find someone to guarantee your loan
One of the keys of this type of loan is that you need to find someone who is willing to fully back your loan application. Guarantors are typically family members or close friends; and this is simply because you already have a relationship with this person so they are more likely to trust you and back your application.
5. You can get cheaper interest rates if you have a good credit rating
It is though worth noting that with a guarantor loan you will be paying a higher interest rate than if you had a good credit rating and applied for a loan from one of the high street banks. For if you had a good credit history, then a bank may be able to make you a loan at less than 10% annual percentage rate (APR) compare to a guarantor loan which is closer to 50%. Whilst this may seem expensive, this is however significantly cheaper than the other types of loans available to those with poor credit ratings, with some Pay Day loan companies charging upto 4,000% APR!! So if you do have a good credit rating we would recommend first checking out the range of unsecured loans available.
6. Your guarantor does not necessarily need to be a home owner
For the larger loans your guarantor will need to be a homeowner; for this just gives the lenders a little more security over their money. Though for loans less than £500, as long as your Guarantor has a clean credit rating then it does not matter if they are not a home-owner.