A popular type of loan
Guarantor loans are the fastest growing form of personal finance in the UK personal finance market today. But when is taking out a guarantor loan a good option?
Who are guarantor loans for?
Guarantor loans are designed for those in a financially stable position, but who don't look like it on paper (ie. on their credit file). So as an example, let's imagine that a couple of years ago you lost your job, had a month or two out of work and couldn't afford to keep up repayments on a personal loan, credit card or pay your mobile phone bill. Now you've been back in work for ages, you've caught up with all the missed payments, settled everything but now you could really do with a few thousand pounds to buy a car. If you go to a bank or high street lender they'll check your credit file, see that you haven't always met your financial commitments and turn you down in a heart beat. But, you know that you will be able to keep up your repayments if you take out a loan and you've got at least one friend or family member who knows that too.
How do guarantor loans work?
Guarantor loans are just like any other personal loan but you need a friend or family member to back your application. Your guarantor agrees to make the loan repayments if you cannot or do not. Your guarantor will need to have a good credit history, an existing UK bank account, and be over 21, or in some cases 25.
How much do they cost?
The price differs between lenders from around 39.9% to 49.9% APR. The total amount you end up repaying will also differ according to the time you wish to take to pay the loan back. Interest is applied periodically (typically daily or monthly) so if you pay the loan back early or pay off chunks when you can afford to your overall bill will be relatively lower than it will be if you just make your repayments each month.
How do I choose wisely?
Shameless plug time... Beware there is a growing pool of lenders and brokers competing for your business. Our top tip is to use a comparison website to find a provider who will give you the right combination of price, features & benefits and customer satisfaction. Look no further than your very own Choose Wisely.
Financial health warning
Guarantor loans are a relatively cheap form of alternative credit for those excluded from mainstream providers like banks and high street lenders but beware... They're great if everything goes to plan but if you miss repayments or default you can expect providers to contact your guarantor demanding that they make the payments instead. Make sure you're 100% certain you're going to be able to pay the loan back or risk souring your relationship with your Guarantor.
Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.