Guarantor loans continue to grow in terms of both popularity and the amounts being offered by lenders. Recent research has indicated that the number of guarantor loan approvals rose by almost 60% during 2014 compared with a year earlier and the indications that the number will be even higher this year.
While modern guarantor loans are a relatively new phenomenon, they have quickly caught on. In 2012, the maximum amount being offered on any guarantor loan was £3,000 but this has increased year by year and it is now common to find maximum loan amounts of £7,500. Some lenders are willing to offer up to £12,000 to borrowers in particular circumstances.
The same goes for the repayment schedules. Some lenders are now offering borrowers up to 84 months – or seven years – to repay guarantor loans.
But what has driven this explosive growth in the guarantor loans market and what is making this form of lending so popular?
The simple fact is that guarantor loans are becoming more appealing than other forms of bad credit loans because they generally come with lower interest rates and higher loan amounts. While payday loans may feature APRs of up to 1,000% and maximum loan amounts of £1,000, guarantor loans have interest rates of anywhere between 15% and 60% and an average amount of £5,000.
Guarantor loans are also proving popular because the main high street banks are continuing to strangle credit to millions of people, effectively shutting a large proportion of the UK population out of the loans market.
Other people might find that they are getting repeatedly turned down for credit because they have been late with a single repayment and this may have been only a day or two overdue. And there are a large number of people without any form of credit history at all – particularly young people who have never taken out a credit card, never had a loan or have not even arranged an overdraft facility. These people find themselves in a Catch 22 situation where they can’t get credit because they have never borrowed money before and so find it virtually impossible to start managing borrowing responsibly.
Guarantor loans can help anybody in any of these situations and this explains their growing popularity. They have proven to be a boon for thousands of borrowers. Guarantor loans work because they allow people with poor or non-existent credit records to use the record of a friend, a family member of somebody at work to borrow money. This third party – the guarantor – provides the lender with the security of knowing that the loan will continue to be repaid even if the borrower’s circumstances change and they are unable to keep up with the repayment schedule.
By providing a guarantor, you’ll get access to lower fees and interest rates as well as the larger loan amounts currently being offered. When you apply for a guarantor loan, the lender will run a credit check on the guarantor, not on you, so it’s unlikely that your financial history will derail your application.
Repairing your credit record
A major plus with guarantor loans is that they provide a highly successful route back to having a good credit record. While an applicant may have been turned down for personal loans, overdrafts or credit cards, there is a high chance that he or she will be able to successfully apply for a guarantor loan.
And once the loan has been issued and the borrower starts repaying it, then each repayment made on time will be recorded on his or her credit record. Over time, this will allow the borrower to repair his or her credit record and to apply for other types of credit without having to have a guarantor.
Other people caught in the credit trap include younger borrowers – particularly those who have recently taken out their first mortgage on their first home. These people may find that their ability to secure more credit to fund redecoration or other home improvements may be limited because lenders are reluctant to offer them further credit on top of the mortgage until they have made a number of repayments.
Guarantor loans provide a great route back into the credit market for these people by using the good credit records of people who are prepared to act as security on the borrowing. As a result, the applicants get lower interest rates, larger loan amounts and longer repayment schedules than if they had simply applied for an unsecured loan on their own.
There are plenty of unsecured personal loans available to people with poor credit records. But a lot of these come with only relatively small initial amounts. Guarantor loans, on the other hand, can be for as much as £12,000 and this makes them particularly suitable for people who have had a sudden change in their life circumstances. That might be buying a new car, having a baby, needing to cut their outgoings with a consolidation loan or wanting to carry out home improvements.
It can be extremely disheartening to be rejected for a loan when you most need the money. Thankfully, guarantor loans can help you through these difficult times. If you know somebody who will be prepared to guarantee your borrowing then you will have access to a larger loans market and, once approved, you’ll be able to plan your finances years ahead.
Article provided by Mike James, an independent content writer working together with Solution Loans – a technology-led finance broker with many years’ experience in advising clients of their most suitable types of credit.