When you need quick cash and you have bad credit, borrowing from banks is going to be full of hassles. Plus you're also more likely to get refused because these lenders require credit checks. Fortunately, there are alternatives for people hindered by bad credit history. If you've been refused a personal loan anywhere else, there are loan products such as guarantor loans that can save the day. But like any other type of debt, it is imperative to take your time and understand the loan before signing any contract.
A guarantor loan is a type of personal loan that requires a guarantor to act as co-signee of the debt agreement. In other words, as long as you have a guarantor, you can apply to borrow between £500 and £10,000 for a variety of purposes even if you have bad credit. Since there is no security involved and no credit check required, processing a guarantor loan generally takes just one day or less.
In terms of repayment, guarantor loans can be repaid in 1 year to 5 years depending on your set-up with your lender. Monthly repayments are required and borrowers are advised to pay on time to avoid putting your credit score at greater risk.
Guarantor loans are designed for people with bad credit and those who can't get approved for a personal loan elsewhere. Unlike payday loans, a guarantor loan allows you to borrow a larger sum at longer terms. If you need quick cash for emergency and other immediate needs, getting a guarantor loan may be ideal for your situation. You can also use the loan to revamp your credit score by ensuring that you send your monthly repayment on time.
To apply for a guarantor loan, there are basic requirements both the borrower and the guarantor must meet. For the borrower, you need to be of legal age (at least 18 years old), a resident of UK and has proof of income either from being self-employed, working part time or full time. You'll also need a UK bank account for the money transfer once approved.
For the guarantor, the person must be 21 years old or above, has good credit rating, a homeowner or mortgage payer in the UK and is not financially linked to the borrower.
When compared to traditional loans, guarantor loans are expensive at an average Representative APR of 50%. But when placed side by side with other personal loans for people with bad credit, guarantor loans are the most affordable. While options such as payday loans and logbook loans have APRs of 1,000% and 400% respectively, guarantor loans keep it reasonable at 50% or below. For example, if you borrow £5,000 payable over 2 years at a fixed per annum rate of 41.16 and Representative APR is 50%, you'll be paying £309 per month or about £7,418 in total.To have a better and clearer understanding of how APR affects the cost of your loan, click here.
Because all that is required from borrowers is to present a qualified guarantor, the risks with the loan product are pretty low. There is no asset or security that you can lose. If you do delay or miss a payment, your interest rate may be affected as well as your credit score but that's the worst that can happen. To avoid the consequences, you'll just need to make sure you borrow only what you need and you can afford so you can keep up with the repayments monthly.