No Guarantor Loans: Looking After Your Interests
There are ways to get loans when your credit rating is poor. But there are risks too. You should go into the process with open eyes. Your low credit rating means that you, too, are considered a risk by the lenders. Those who are prepared to lend you money will try to offset that risk with high interest rates, which carries the peril of racking up unmanageable debt - quickly.
And then there’s the danger of unscrupulous lenders who are only too happy to prey on the vulnerable who need money and don’t have many other options to turn to.
The safest way to borrow money when you have a bad credit history is to have a guarantor who will back your loan. But we appreciate that this isn’t always possible. That, however, is when the risks start to increase and when you really need to be savvy about what you’re signing up for.
Even if you can’t find a guarantor to back your borrowing, there are secure loan options out there from reputable lenders who will offer affordable rates. They are known as no guarantor loans. In this guide, we’ll look at some of the key things you need to know about choosing no guarantor loans. We’ll look at the different types of no guarantor loans, those for smaller and larger loan amounts, and those for shorter and longer repayment periods. We’ll discuss the potential pitfalls you face when trying to find a loan without a good credit score and without a guarantor, explain when and why a no guarantor loan is a good option, and offer some suggestions for finding the right one for you.
What are my loan options if I have a poor credit history?
If you search for things like ‘bad credit loans’ or ‘low credit score loans’, two main types of product crop up - guarantor loans and short-term or ‘payday’ loans. With a guarantor loan, you have to find someone who will vouch for or sponsor your application. This means that, should you default on your payments, they will have to pay instead. It’s a way for lenders to give themselves an extra layer of protection when a borrower doesn’t have a good history of keeping up with their debts.
Short-term loans and payday loans are types of no guarantor loan - in other words, you don’t need a third party to back your application. The idea of a short-term loan is that you borrow a small amount at short notice. The interest rates are high (representative APRs are typically over 99.9%), but you’re supposed to pay them back quickly to minimise the impact that has - for example, after your next payday. Warning: High cost, short term loans are expensive and usually a last resort so please make sure you can afford the repayments.
Although less visible, there are alternatives. Some providers do offer no guarantor loans for larger amounts over longer repayment periods, at lower APRs. This means you should never have to take out a ‘payday’ loan for amounts over a few hundred pounds and for repayment periods longer than 12 months. You just have to know where to look to find these types of product - which we’ll help you with later in this guide.
What is my safest option?
For anything more than a few hundred pounds, finding a guarantor is usually your best bet. That is because lenders will offer a lower APR if you have someone to back your loan, so borrowing costs you less and the risk of getting weighed down by debt are lower.
However, sometimes you simply cannot find a suitable guarantor. And that can get frustrating. Everywhere you turn, people are asking for a sponsor you just don’t have. That’s when people become vulnerable to making the wrong decision. Either they take out a high-cost, short-term loan for an amount much higher than they should and saddle themselves with eye-watering debt repayments. Or, in desperation, people turn to less-than-trustworthy loan providers who offer them the money they need, but without the usual credit checks and balances. It’s these that often turn out to be the scammers and loan sharks that rip people off.
The key to staying safe and making the right decision is not to rush into anything, do your research and be sure about what you’re signing up for, and who from. Let’s look at how to protect yourself when looking for a no guarantor loan in more detail.
How do I avoid being ripped off?
Unfortunately, it can be tricky to sift out the genuine loan companies trying to provide a legitimate service to people with a bad credit history from the opportunists looking to take advantage.
There are three golden rules to borrowing safely without a guarantor - know your rights, know the signs of a scam and avoid any lender that has anything other than first-class credentials. This is what you need to look out for.
In the UK, all lending is regulated by the Financial Conduct Authority (FCA). Legitimate providers have to be registered with the FCA in order to trade lawfully, which also means they are bound by FCA rules. A first step to protecting yourself is to steer well clear of any unauthorised, illegal lenders. You can check whether a company is registered with the FCA here.
There are some other tell-tale signs that should make you cautious about dealing with a loan company. It’s increasingly common to see things like “no credit checks required” or “guaranteed approval” advertised by online lenders. No genuine lender will ever promise approval without running a credit check, so this should immediately put you on your guard. Beware of any request to make a payment up front - it’s more than likely a scam and you’ll never receive your loan. And look for a physical address for the company - underhand lenders want to make it as difficult as possible for you to contact them after they’ve taken your money.
FCA rules on loans are based on the principle of responsible lending. This means that lenders are supposed to meet four criteria whenever they grant a loan:
- Act in the customer’s best interests
- Make sure the loan is affordable (i.e. the customer is able to meet the repayment schedule)
- Be completely transparent about all terms and conditions
- Support any customer who has difficulties with repayments.
If you take out a loan and don’t feel the lender meets these criteria, then you may have grounds to claim the loan was mis-sold. This can result in the interest on your loan being paid back to you. DebtHacker.co.uk offers lots of free advice and resources on how to complain directly to your loan provider. Otherwise, you can file a complaint through the Financial Ombudsman.
How do I find the right no guarantor loan for me?
To make the right decision, there are first of all some general things to consider around the mechanics of borrowing. An obvious point is that the more you borrow, the more you have to pay back. But one way to make this more manageable is to have a longer loan term or more time to pay back the debt, which will lower your monthly repayments. That’s why short-term loans, with high APRs and short repayment periods, are unsuitable for borrowing larger amounts.
People often get tied up in the APR they are quoted, or the rate of interest charged on what they borrow. What is more important is the total amount you will have to pay back and the amount you will have to pay in each instalment. A good provider should make this clear to you from the start.
One thing to bear in mind about APRs, however, is that anything above 99.99% is classified by the FCA as a high cost, short-term rate and subject to special rules. If you are borrowing larger amounts, you should never accept a rate that high.
Ultimately, the easiest way to get the right loan for you from a reputable source, whether you have a guarantor or not, is to use a comparison site like Choose Wisely. Our extensive database of trusted providers includes those who will offer no guarantor loans for sums up to £10,000. What’s more, our simple, one-stop Get Accepted application process automatically matches you to the right loan from the right provider, getting you accepted in principle. It's important to us that we offer you speed and transparency when applying for your loan. That way, you have the power to take control and make the best decision possible - that's our Money for the Many promise.
Andrew joined Choose Wisely 5 years ago, originally working in a design capacity to make sure the website was simple to use. Most notably he worked with the Consumer Finance Association to design the comparison table of choice for High-Cost Short Term Finance products.