Given the current financial climate, many lenders have begun to drift towards prioritising secured loans to reduce the risk that they are exposed to. This is an option for anyone who is in a position to offer security (such as a property) against the balance of the loan but where does it leave people who are non-homeowners? If your credit rating is less than ideal, you may find that a guarantor loan can be a great alternative to a more risky secured loan and may even represent your only affordable option. Offering the ability to borrow up to £20,000 over 1 to 7 years and the APR, although considerably higher than the High Street standard, is significantly lower than nearly all other current forms of ‘bad credit loan’ such as a payday loan.
Alternative to Payday Loans
It is important to fully consider the ramifications of taking out a loan because although the interest rates are manageable, you really must enter into the agreement that you are looking to solve a difficult financial situation rather than just push it further down the road. Guarantor loans should not be viewed as a ‘quick fix’ as they offer a genuine opportunity to take control of any outstanding debt. Whilst secured loans offer a cheaper option if you are a homeowner, these types of loan represent a much bigger financial commitment than an unsecured or guarantor loan – no less than the mortgage itself. We have written various articles and guides about secured loans or homeowner loans as they are sometimes called that we strongly recommend you read in this blog if you are considering this type of product.
What are Guarantor Loans?
Guarantor loan lenders understand that if you have a poor or no credit history, then you’ll find it harder than most to get a loan. That’s why they have taken a stand to offer you a financial product called a guarantor loan. Guarantor loans are generally available from £500 to £12,000 and terms are from 12 to 84 months. There are also short term guarantor loans of £50 to £500. For loans up to £15,000, you can get a guarantor loan where the guarantor can be a non-homeowner. For loans over £15,000 your guarantor will have to be a homeowner. A guarantor loan is one that is not secured on property, making them ideal for non-homeowners or tenants and instead relies on a second person (the guarantor), who will sign an agreement guaranteeing they will step in to make the repayments if you can’t. This may offer the ideal solution if you:
Have a poor credit history
Have recently been declined for an unsecured loan
Have a friend or family member who has agreed to be your guarantor
Have a guarantor in place (they don’t necessarily need to be a homeowner themselves)
Have a guarantor in place who is in receipt of a regular income
Finding someone who is prepared to back your application if you default on payments can be tough. Ultimately, it will be the guarantor who is responsible for the loan so choosing someone who fully understands their potential responsibilities is crucial. Close friends and family members are often popular choices. Choosing a guarantor loan also offers associated benefits and can help you to build up your credit rating, or for those who are not homeowners as they are not required to secure their property.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam