Guarantor Loans are a great way to get a competitive APR if you have a less than perfect credit history. Borrowing money for a special occasion or to meet unexpected costs is the norm for most people who aren’t lucky enough to have a big savings account, but finding the right loan can be tough – particularly if you’ve had some credit problems in the past. Even the slightest blip, such as a missed payment, can be enough to put off the high street lenders. Fortunately newer products such as Guarantor Loans can help.
Talk Loans is a loan broker specialising in Guarantor Loans that will compare the market for you and ensure that your application goes to a lender most likely to help you. Even better, we do all of this at absolutely no charge to you, the customer.
Why Guarantor Loans?
Guarantor Loans are a form of UK credit that really grew in popularity when a lot of instalment type lenders moved out of the market around 2007/2008. The whole idea was to go back to a more traditional, trust based decision making process, instead of relying on credit scoring and “computer says no” technology. By asking a friend or family member to back the application, the lender is putting faith in that relationship and basically saying “I am willing to overlook your less than perfect credit history because your Guarantor, who has great credit, is vouching for you”. This is backed up by the security of the guarantor being willing to step in if the borrower happens to miss a payment.
If you’ve looked into getting an instalment loan but you have bad credit then you’ll know that these can be expensive – this is because a bad credit file makes the applicant a higher risk to the lender. To allow for this risk the lender puts up the price i.e. their interest rate. With Guarantor Loans the guarantor is effectively reducing that risk by saying that they vouch for you – because of this the lender is able to offer the loan at a lower price.
Guarantor Loans are also fantastic for rebuilding credit. Guarantor lenders, like virtually all other lenders, report to one or more of the credit agencies (Equifax, Call Credit and Experian). This means they will register your loan with them and then each month will tell the agency that you’ve made your repayment. Other lenders use these credit reports when assessing future applications – having a long period of payments made on-time looks great to prospective lenders, credit card providers, mobile phone providers or mortgage companies.
To put it another way, first you need to understand how an APR works, and what it is.
Shopping around for a loan can seem daunting and so to help customers compare loans, all lenders are required to show the APR (Annual Percentage Rate). The APR is really just a way of expressing the ‘price’ of the loan – the higher the APR the higher the ‘price’ of borrowing the money. But the lenders will price their loans according to how confident they are that their customer will be able to pay it back – the less confident they are, the higher the price. In the old days the local Bank Manager would know their customers well enough to decide whether or not the customer would pay back the loan but these days the banks just don’t have that kind of contact with their customers (and have no desire to).
Instead, most of the lenders will make their decisions based on information held by the credit reference agencies – anything like a missed payment (even if it was for a valid reason) can push up the cost of the loan. With Guarantor Loans the borrower asks somebody they know to vouch for them to the lender and this person is called the Guarantor. The Guarantor is effectively saying to the lender;
“I think the borrower will repay the loan, but if they don’t I’ll step in and pay on their behalf”.
Having somebody vouch for the borrower gives the lender more confidence and so in turn they are able to reduce the interest rate. Of course a Guarantor is only going to do this if they know the person well enough to know that they will actually pay the loan back, so often the Guarantor is a friend, relative or colleague. You as the Borrower also need to be confident you can repay the loan (otherwise the guarantor will be asked to pay) and if you’re not then the loan isn’t the right solution for you.
It is worth mentioning at this point, that if you feel your credit situation is getting out of control or becoming un-manageable then adding more credit is definitely the wrong solution. Talk to experts who can help you manage your existing credit. We’d recommend either;
- The Citizens Advice Bureau – http://www.citizensadvice.org.uk/ or
- Stepchange – http://www.stepchange.org/
Both of these organisations are not-for-profit charitable organisations.
Are Guarantor Loans For You?
The first question you need to ask yourself is whether you actually need a loan at all. Can you get what you want by saving up for a few months (which will be cheaper in the long run)? If the answer is no, you’ve decided you do need a loan, but can’t get the lower rates because of problems in the past (maybe your only option is a high cost short term loan) then a guarantor loan is a great way of financing your debt consolidation or purchase.
The biggest problem most customers have with Guarantor Loans, in a lot of situations, actually ends up not being a problem at all. We speak to people every day who feel embarrassed asking somebody they know for help as a Guarantor, but inevitably prospective guarantors are far more understanding than you’d think, especially when they realise how expensive some loans can be and you give them reason to believe you will keep up with the monthly repayments.
Here’s our checklist if you’re thinking of applying for a Guarantor Loan:
- Ask yourself whether you really need a loan at all – saving up is cheaper in the long run.
- Work out how much you need or would like to borrow.
- Jot down how much you spend each month on essentials and how much you earn – this will tell you how much you can afford to repay each month.
- Think about who knows you best and might be willing to be your Guarantor.
- Talk to your Guarantor before you apply and explain why you need the loan and how the Guarantor can help (we can help you with this if you want).
- Choose a broker who can talk to you about your application and talk you through the options available before you apply (that’s us!)
- NEVER pay any upfront fees for a loan application, they are in almost all situations a form of scam.
Have you applied directly with a Guarantor Lender before?
Have you sent all your documents in and gone through an in depth income and expenditure only for them to refuse to lend you the money at the last minute? We understand how frustrating this can be.
We work very closely with our market wide lender panel to ensure you don’t waste your time when applying through us. We have an intrinsic understanding of different lenders criteria, and after a quick discussion on the phone (as long as you are honest with us) we will match you up and if all goes well you could get the money in your account on the same day you speak to us.
We’re different from other brokers because;
- We’ll talk to you to find about your individual circumstances and understand exactly what you want
- We’ll search the market and talk you through all your options, letting you choose the option that works best for you
- We’ll walk you through the entire process, explaining what the lender will need and why and always being there to answer any questions you may have
- We’ll never charge you a penny for this service – whether you decide to take out a loan is entirely up to you. If you do take out a loan that we’ve found for you we’ll get paid a commission by the lender but the choice is entirely up to you and we won’t hassle you to take anything you don’t want to.
Guarantor Loans For Bad Credit
As discussed above, the fact that your application is supported by a Guarantor means that the lender is less reliant on your credit score when assessing your application. This means that if your Guarantor has a good credit history you are much more likely to have your application accepted. It doesn’t matter if you’ve already been turned down by everyone from the High Street lenders to the Payday loan companies – the Guarantor Lenders have a different set of priorities.
Guarantor Loans range from £500 all the way up to £12,000 with loan terms that vary from 1 year to 7 years – so there really is a wide range to choose from to find the one that suits you best.
Different Guarantor Options
Relationship to you – the Guarantor can be anybody that knows you and is willing to vouch for you and your loan application. They can be a friend, relative, neighbour, colleague, employer – anybody really. The lenders really don’t mind what the relationship is, so long as the Guarantor is happy to support your application.
Homeowner or Tenant? – this is one of the big changes in the last year as your Guarantor no longer has to be a Homeowner. For either a Tenant or a Homeowner the main thing is that your Guarantor has a good credit history and can afford the loan repayments if called upon to do so. It is important to make sure the guarantor has enough income to cover the repayments if necessary (this is known as “affordability”). So be sure to make sure the loan repayments are spread out over a suitable period of time.
A Homeowner Guarantor will generally allow you to borrow more money and at a cheaper interest rate. Tenant Guarantor Loans are generally available from £500 to £3,000 whereas with a Homeowner Guarantor the loan size can increase to £12,000.
Employed? – your Guarantor doesn’t necessarily have to be employed but they will need to show they have a good and reliable source of income. This could be from employment, self-employment or a pension.
Guarantor Loans are generally a great way to get the money you need whether you have no credit history, a poor credit history, or perhaps have no credit history at all. Maybe you are new to the country and most lenders are closing the door on you.
Here at Talk Loans we’re here to help regardless of your circumstances. We’ll go through your personal circumstances and give you honest and friendly feedback on the products available and the options you have to choose from. We can help explain anything that’s not clear and are happy to explain the process to your Guarantor if you wish.
We offer this service totally free to you and with no obligation – if you don’t like what we find for you then you are absolutely free to walk away. You can apply online here or you can call us directly, we don’t use premium rate numbers and are happy to call you straight back.
Who Can Act As Your Guarantor?
Each lender is different but all will expect the Guarantor to know you in some way or another – it may be you’re related, or friends or even colleagues – the exact nature of the relationship doesn’t really matter although some lenders won’t accept a husband or wife.
Learn more about who can be your guarantor here.
To make an application a Guarantor Lender will require some basic information about yourself and your Guarantor – such as names, addresses, contact details etc. The lenders will then make some basic checks to make sure that the information is correct and to protect themselves against fraudulent applications (people making up names and addresses in order to get a loan and not pay it back). Most lenders will then want to talk to you as a borrower to make sure that the loan is affordable. This is something that all lenders are required to do by law to show that they are lending responsibly.
It will usually involve a 5 to 10 minute telephone conversation to talk through how much you spend each month on outgoings – such as food, utilities, petrol and any other loans you may have. The lender will also want to understand how much you earn each month either from salary, benefits, pension or a combination of any of them. It’s a good tip to jot down that information beforehand and have it to hand. Some lenders may also want you to send them some documents supporting this such as a copy of your payslip or a bank statement – if you have a good broker they’ll be able to tell you exactly what is required before you decide to apply.