Guarantor loans are a new form of lending, they offer people with bad credit a chance borrow some money for mostly any reason (except maybe leaving the country). Numerous places have nothing but bad things to say about these guarantor loans as not only do they often have a twisted view of the current financial market, but often do not actually know the full facts about how these loans work.
I thought a little article debunking some of the main myths scattered about the internet would help a lot of prospective borrowers make up there own mind.
So without further ado I present to you the top 5 myths about guarantor loans debunked once and for all:
Guarantor’s must hand over there bank details
This is not true, while some lenders require the guarantor’s bank details there are also a couple that have no need for this. These are usually smaller companies that strive to build up a strong relationship with the borrower and try not to have to rely on the guarantor unless contact with the borrower dies down.
The interest rates offered are ludicrously high
While there is some truth in this statement it is important to consider the alternatives. Unsecured lenders are few and far between, back when things went sour towards the end of 2007 the majority of the major lenders pulled out, from Welcome Finance to much more recently the lending arm of Lloyds TSB: Black Horse Finance.
Once lender that has survived is Everyday Loans, the listed interest rate found on Money Supermarket is 34.9%. This is for people with a good to fair credit history. Another lender is Provident, they offer doorstep loans for people with bad credit; this means someone comes to your door once a week/month to collect your payments. The interest rate listed for Provident is 272.2%.
Last of all we have pay day loans, I am sure you have heard of Wonga, they offer an interest rate of 360% (although it should be noted the APR is 4214%).
Now taking a look at the rate UK Credit offer through Guarantor Loans Online the interest actually looks very reasonable for bad credit loans. They advertise an interest rate of 43.85% on all loans direct and a slightly lower rate on all broker business. Unlike some of the other companies mentioned above, these rates are also fixed.
The loan is secured against the guarantor’s property
Guarantors are required to be homeowners; however unlike secured loans absolutely nothing is secured on the property. The only reason guarantors must be homeowner is because they are much more likely to make loan repayments to avoid it affecting their mortgage rates. They also will usually have a proven financial track record.
You can only get a small loan
Guarantor loan amounts are constantly increasing; currently the maximum you can borrow is £5000. When one lender increases the amount offered, most will follow suit. This is great for consumers and means that hopefully we will be seeing amounts breaking through £5000 in the next year or so.
Guarantor loans go on the guarantor’s credit file and not the borrowers
Guarantor loans are in the borrower’s name, the loan will not show up on the guarantor’s credit file unless the loan defaults (if both borrower and guarantor refuse to pay). This means it is a good way to fix a bad credit file and hopefully be able to in the future go for a more mainstream option through a bank. The guarantor need not worry about the loan stopping them getting finance in their own name if necessary.
So there you have it, hopefully this has been insightful and helped out a bit when deciding whether or not to go down this route. As always it is very important to think long and hard about taking out a loan, especially if getting a close friend or relative involved.