Getting a personal loan has become significantly harder since the credit crunch. Banks have been told to become more cautious about those that they lend to. Even people who once had a good credit rating have found that they are being rejected by banks and building societies that would have once welcomed them with open arms. You shouldn’t give up hope if you’ve been denied a personal loan. There’s another financial product that is almost identical, but is available to those with bad credit ratings.
A guarantor loan works by having a friend or family member with a good credit history vouch for you. They agree to repay the loan if you’re unable to. This reduces the risk for the lender, allowing them to lend you up to £5000 for up to five years.
What are guarantor loans?
A guarantor loan is very similar to a personal loan, but requires you to find someone to agree to repay if you’re unable to. Interest rates are somewhat higher than mainstream personal loans, but they are often the cheapest option for those with bad credit. Guarantor loans are unsecured, but some lenders want to know that your guarantor is a home owner. Others will be happy to accept non-homeowner guarantors with excellent credit ratings.
Why would I choose a guarantor loan?
Guarantor loans are good for big purchases. Many people use them to purchase or repair a car or motorbike, allowing them to get to work or start a new job. If you’ve been offered a new job that requires a vehicle, it would be silly to turn it down because you currently don’t have a set of wheels. A guarantor loan enables you to purchase a car on credit in the knowledge that the income from your new job can cover the repayments.
Guarantor loans are often used for rental deposits. It’s a sad fact of life that when moving home you have to pay a new deposit before your old deposit is repaid. If you don’t have savings this can be difficult, and with rents on the rise, often a payday loan won’t be able to cover the required deposit. A guarantor loan can help, and is spread over a longer period ensuring that you don’t have to worry about getting your old deposit back in time.
There’s many other reasons why a guarantor loan would be appropriate. Perhaps your oven has broken down, and you need to purchase a replacement so you can keep cooking low cost meals. Or perhaps you might need to pay off a payday loan and want a more sensible option than rolling over.
Guarantor loan vs payday loan
Guarantor loans and Payday loans are very different financial products, but they both appeal to those with bad credit history. Guarantor loans are the best option if you think that a payday loan is too short, and you might miss the repayment. They’re also better for bigger purchases – why take out several payday loans to purchase a bigger item when you could take out a single guarantor loan with a significantly lower interest rate. The interest rates on guarantor loans are so low in comparison with payday loans that it can often be cheaper to take out a guarantor loan for a year than a payday loan for a month.
