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Why are guarantor loans better than payday loans?

Thinking of a payday loan? A guarantor loan is better.

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Avoid Payday Loans

  • Payday loans are not a quick fix
  • Loan costs can spiral
  • Guarantor loans are more flexible and cost effective

Better than Payday Loans

A “challenging” credit score might make you think that your borrowing options are limited. Many people assume that bad credit loans mean payday loans. Although they can provide a great solution if you’re looking for credit, very short-term finance like this can also be difficult to manage and just isn’t appropriate for every situation. In fact, for many people, guarantor loans are simply better – here’s why:

Guarantor Loans vs Payday Loans

Before we look at why guarantor loans are better than payday loans, it makes sense to summarise both:

Payday Loans

A short-term option to borrow a relatively small amount of money to be paid back when you next receive your salary. You don’t have to have a perfect credit score. Lenders will be more focused on your current income and outgoings (re. budget affordability).

Guarantor loans

A flexible type of borrowing of up £15,000 over 1 to 5 years. The key feature of this financing is that you need a person with good credit to support your application. This will be someone who is close to you and who will step in and make repayments to the lender on your behalf if you’re not able to make them. Guarantors need to be at least 18 years old (21 in some cases) and will need to have a reasonable income, but don't have to own their home.

Although both of these options are often considered by anyone looking for bad credit finance, there are significant differences. Indeed they are solutions to different problems.

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Instant Payout Guarantor Loans

Payday Loans are No Quick Fix

Whether you need money to pay for Christmas presents or an emergency, such as a broken boiler, often it’s payday loans that are identified as the quick way out of the situation. However, they are not for everyone and you might already be wondering how to avoid payday loans, based on other people’s experiences. Guarantor loans are processed online and can be fairly swift when it comes to receiving the money. In fact, you may have the cash in your account within just 24 hours, making it easy to cover the cost of whatever you need to pay for without delay. There are also a number of other reasons why guarantor loans are  better than payday loans when you need money. Payday loans are a bad idea because:

  • Very high interest rates. Payday finance has some of the highest interest rates in the financial market. Although you’re only borrowing for a short period of time you will usually pay significantly more with this type of lending.
  • Fees and costs. Some lenders charge fees for setting up the loan and may have a number of additional hidden charges to add on to what you owe.
  • Costs can spiral. The financial regulator had to step in to deal with the number of payday loans that had become out of control for consumers. It’s very easy to get into trouble with this type of debt because of the costs and interest involved.
  • Amounts are limited. Borrowing limits are low so there is only so much that you can do with this type of debt.

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How to Apply

Guarantor Loans are Versatile

It’s true that there are only a limited number of options for bad credit unsecured lending – and payday finance is one of the choices available. However, it doesn’t have much versatility - guarantor loans are better than payday loans for a number of reasons:

  • A more affordable option. If affordability is based on whether you can cover your monthly repayments then guarantor loans are by far the better choice. Because repayments can be scheduled over a longer period of time you can make lower monthly repayments that won’t interfere with the other monthly payments that you need to make.
  • Help for a range of situations. Guarantor loans can be as fast as payday finance, which means they are ideal for emergencies too. You can also use this type of credit for a very wide range of different purposes. For example, you could use it to cover outstanding bills. 
  • Consolidating your debts. If you’re struggling to make debt repayments on short-term finance, or you’re looking for a way to permanently reduce the balance on flexible finance, such as a credit card, consolidation is an easy way to do it. With a consolidation loan you simply pay off the other debts, close the accounts and you’re left with one single monthly payment at a rate you can afford until the debt has been completely repaid. If you’re keen to get free from other debts, guarantor loans could help.
  • A lower interest rate. The interest that you’ll pay will depend on your credit score and the lender you choose to apply to. However, often you’ll find that guarantor loans cost less.

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Learn about Guarantor Loans

Be Cautious about Short Term Finance

There are a lot of finance specialists, such as The Money Advice Service, who recommend avoiding payday loans. Despite the caps that have been introduced to fees and charges, they can still be tricky to repay and end up being very expensive. It’s easy to get into trouble with this type of short-term finance and, at that point, lenders often suggest a deferral or a new deal. Which can lead to even more problems. Although payday loans are small, they can have a big impact on your credit score. If you miss your payment, make it late or can’t make it at all then your credit score will suffer. You may even end up with a County Court Judgment (CCJ) against you.

Guarantor loans have many advantages over payday loans and none of the disadvantages. With longer repayment terms, they are much more affordable and easier to repay, meaning it’s much less likely that you’ll end up damaging your credit score. If you’re looking to borrow, whether it’s for an emergency or to finance a purchase up to £15,000, you will find it simple, fast and free to arrange a guarantor to help you do it.

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About Guarantor Loans

 

Representative Example (Loans £500+)

Loan Amount

£3000

Monthly Repayment

£134.10

Loan Term

36 mnths

Total Repayment

£4827.60

Rate of Interest

34.05%

Representative APR

39.9%

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