Is a guarantor loan right for you?
It can sometimes be difficult to meet a lender's eligibility criteria, which makes getting a loan an arduous process. If your credit record is weak, or your circumstances don't quite match up with requirements, it can seem like there are few options. Guarantor loans could be the right choice.
If you have poor credit, payday loans or Bad Credit Cards can be an expensive way of borrowing. However, if someone can act as a guarantor for the debt, your options are greatly improved. In this article, we look at how guarantor loans work, as well as some of the best products you have available.
What is a guarantor loan?
Essentially, a guarantor loan is a personal loan that someone else will be responsible for if you default on it. This type of loan assures lenders that a risky borrower is covered by someone who can pay. The person who guarantees the loan is legally responsible for repayment in the event that the main borrower is unable to pay.
These types of loans often come with a high interest rate compared to other similar products. However, they're usually a lot cheaper than relying on payday borrowing or bad credit cards. They are a way for those with poor or limited credit history to borrow money over a long period of time.
Who can be my guarantor?
Your guarantor should be someone you trust, who understands the significance of signing a guarantor loan. Usually, this will be a close family member, friend, or work colleague. Aside from this, there are a few stipulations which must be met.
A guarantor must
Be at least 18 years of age. Some lenders require this age to be at least 21.
Be employed in a full-time capacity.
Have their own bank account that is not shared with you.
Not be your spouse.
Other lenders will also require the guarantor to be a homeowner with a strong credit record. In some instances, the person guaranteeing the loan may have to put an asset up to secure the loan. The guarantor's credit record should not be affected unless the primary borrower defaults and the guarantor does not meet the repayments.
Is a guarantor loan the right choice?
If you have a poor credit history and have been rejected credit by a high-street bank, a guarantor loan could be a good option. It gives you the opportunity to utilise another person's credit score to get the money you need. Of course, this means finding someone who can vouch for you and is happy to co-sign.
Despite the often high APR rate, it can be more affordable to choose a guarantor loan if you need a long-term solution. Providing you make your monthly repayments, this type of borrowing can be a good way of building up your credit score. Just make sure that you can afford to make payments. If not, the other person will be responsible.
How much can I borrow?
As with other forms of borrowing, the loan amount depends on your financial situation. Your credit record and income will be checked to determine how much you can borrow. However, usually, this amount will be somewhere between £1000 and £10,000.
Bear in mind that the APR will be higher than on an unsecured loan so it will cost you more to borrow the money. Your guarantor will be responsible for the loan amount if you are unable to make repayments, and your credit rating will be impacted by the process.
What are the alternatives?
If your credit rating isn't great and you can't find a guarantor to co-sign your loan, there are a few other options you could consider:
Bad Credit Card. These are credit cards that are specifically designed for people with a poor credit rating or no record. They can help you rebuild your credit score over time but usually have high APR rates.
Payday Loan. If you need some short-term lending, then you could consider a payday loan as a last resort. They often have high interest rates and should be repaid as soon as possible.
Debit Card. A debit card is an excellent way to manage your money. It means you will only spend what you have, and direct debits can help to improve your credit score.
The best guarantor loans
We've highlighted some of the best guarantor loans available. These represent a balance of the best interest rates, loan amounts, and terms of the transaction. Not all lenders offer guarantor loans, but some that do include:
Amigo is one of the most popular lenders in this sector. They provide a fast service with a broad range of loan amounts and flexible terms:
Loans are available between £500 and £10,000 with a representative APR of 49.9% variable.
Repayments can be made over a period of 1-5 years.
Available even to those with CCJs or previous defaults provided the guarantor is a homeowner aged between 18 and 75.
Fast to make payments and doesn't have any hidden fees.
Another lender with a lot of popularity is TrustTwo. They have some good rates and loan amounts, and are flexible with guarantors and length:
Borrow between £500 and £10,000 at a representative APR of 49.5%.
Loan term of 1-5 years.
The guarantor can be a homeowner, tenant, or someone living with their parents.
Their website makes it easy to apply online.
Buddy Loans has an excellent customer rating, making them one of the top choices for this type of lending.
Loans of between £1000 and £10,000 are available. The representative APR is 49.9%.
Money can be borrowed over the course of 1-5 years.
The person who guarantees your loan can be a homeowner or a tenant.
Even those with poor credit are considered, and Buddy Loans has forged a reputation for friendly service.
MASA give their borrowers a good range of loan amounts at a competitive APR rate:
Borrowers can access between £1000 and £7500 with an APR of 49.9% representative.
Loans are repaid over a period of 1-5 years.
Guarantors must own their own home and be over the age of 25.
With an excellent range of amounts and a relatively low APR compared to others, the only downside of Suco loans is the period over which they're repaid:
Borrow between £1000 and £15,000 with a representative APR of 39.9%.
Loans must be repaid over the course of 4-5 years.
The individual acting as guarantor must be a homeowner and aged between 18 and 78.