Looking to learn all about guarantor loans? You’re in the right place! Find out all you need to know in our post below.
Cast your minds back to a time before digitised credit scores and other credit checks. Yes, back in a simpler time, where banks gave out loans on a basis of trust, instead of judging you on your financial history. It meant those that needed a loan could borrow money, as long as they had someone who could guarantee their loan. Now we’re in the 21st century, it seems like all lenders have forgotten this old style of lending.
Luckily, not every kind of loan relies on a credit score for approval. Guarantor loans are such loans. You don’t need to have an excellent credit score or rating just to be approved. Guarantor loan providers will approve your loan as long as you have someone who can guarantee the loan repayments for you – they act as your guarantor.
If you’re looking to learn more about guarantor loans, you’re in the right place. This guide has all the information you need on guarantor loans. Everything from what they are to how they work. So, if you’re in need of a loan, but don’t have the credit score to match, you may find that guarantor loans are ideal for you! Welcome to your complete guide to guarantor loans.
What are they?
As we’ve said, guarantor loans emulate an old style of lending. Since the creation of digitised credit scores, more and more people have found they struggle to qualify for loans and other financial products. But, guarantor loans don’t need you to have good credit – in fact, they’re ideal for those with bad credit. They don’t rely on the applicant’s credit score but do ask a few things. For one, you’ll need to provide a guarantor with your application, someone who meets the criteria of each different loan provider. Most will ask your guarantor to be between the ages of 18-78, have good credit and be a UK homeowner. Because they have to guarantee your loan repayments, should you be unable to meet them, they need to have good credit.
Your guarantor needs to sign and agree that if you’re unable to make any of the monthly repayments on your loan, they’ll cover the costs for you. This means that you can borrow more than typically available (if your credit is bad) from other lenders. Your loan is guaranteed by your guarantor which keeps the lender happy.
How they work
Of course, each guarantor loan varies from the lender and the borrower. The general information around them is that they’re unsecure personal loans. Which means your property or possessions aren’t up as collateral against the loan. It also means, you don’t need to be a homeowner in order to qualify for the loan. Guarantor loan interest rates range anywhere from 29.9% – 69.9%, however this is entirely dependent on the loan provider, loan term and loan amount.
Unlike payday loans, these have a fixed interest rate, which means you’ll never pay back more than you were initially told in the beginning of your loan. The loans are repayable anywhere between 1 – 5 years and will remain fixed throughout the loan term. Most providers of guarantor loans offer anywhere from £1,000 – £15,000, a considerable amount more than payday loans pay out.
When it comes to applying for guarantor loans, you’ll need to have the details of you and your guarantor on hand, to make sure the process is simple and quick. Some companies will aim to approve and pay out the loan within 24hours. You’ll need to prove that you’re in receipt of an income, in order to prove you can pay off the loan. Your guarantor will need to sign your application with you and agree to the terms and conditions of the loan. Once approved, you could have your loan within 24hours (dependent on the lender and subject to affordability).
How do they measure up against other loans?
In comparison to other loans, guarantor loans can either be a good or bad thing. See, against payday loans, they’re good. They have a fixed interest rate, and a much lower APR. They allow you to borrow more money (payday loans offer between £100 – £1,000) and ensure that your loan repayments never increase. For someone with bad credit, in need of a larger amount of money, guarantor loans are ideal. However, there are two sides to every coin…
Guarantor loan interest rates aren’t as low as other loans. Whilst you may not have one, a good credit score allows you access to much fairer loans and interest rates. Where a guarantor loan can stand at 39.9% APR, a loan from a bank could be as low as 18% (example APRs).
Whilst it’s not a perfectly low interest rate, guarantor loans are one of the fairest options for borrowing money when you have bad credit. Most traditional lenders and banks won’t take a second look at your application if your credit score isn’t great. And if you’re in need of a loan, a guarantor loan is an easy way to land one.
But, with high interest rates, you can’t use guarantor loans and bad credit lending options forever. So, what can be done about it?
Improve Your Credit Score
If you want to be able to land yourself better loan options in the future, the key is to start improving your credit score. There a simple thing you can do to start improving your credit score. A simple one is simply to register to vote. Any outstanding debt you have should be cleared, if possible, in order to aid your credit rating. You should frequently check your credit report, which you can access for free on sites like Noddle, Clear Score and MSEs Credit Club. Finally, taking out a guarantor loan can help improve your credit (as long as you make the repayments on time) By repaying your bills and loan repayments on time, you’ll slowly rebuild your credit score for the future, meaning you’ll open up your future loan options – so you can receive the best rates possible.
However, if you’re in need of a loan, and haven’t got good credit – a guarantor loan is one of the fairest options out there. Your loan will be at a fixed rate, and with a guarantor, you won’t need a credit check in order to qualify. They just need to trust you’ll make the repayments and be happy to make them if you can’t. Trust based lending loans. Guarantor loans are ideal for those with bad credit.