Guarantor loans are designed for those with bad credit, enabling anyone with a poor credit history to be accepted for a loan, provided they have a guarantor. But it’s important to know how they work, and what the different terms mean, in order to choose the best loan.
So if terms such as unsecured loans, APR, TAR, and flexible finance have your head spinning, then it can be helpful to know what you should be looking for when deciding on the best type of guarantor loan for you.
So what is a guarantor loan?
A guarantor loan is an unsecured loan, meaning that the lender is not protected against default by being able to cover their risk through a claim on any security belonging to the applicant, such as a house or car. Instead, the lender covers their risk through a third party, known as a guarantor. Typically, this is a friend or family member of the applicant, who has agreed to cover the loan repayments if the applicant cannot pay.
Who can be a guarantor?
A loan guarantor could be anyone the applicant knows, provided they meet certain criteria. They should normally be a UK homeowner, aged between 18 – 75, with a good credit history, no CCJ’s, and able to afford any monthly repayments.
Guarantor loan advantages
The right type of guarantor loan offers many advantages to a bad credit applicant.
- The ability to borrow money
A guarantor loan makes it possible for those who have been refused credit due to a poor credit history to be accepted for a loan.
- Rebuild credit history
A bad credit guarantor loan is taken out in the name of the applicant, so credit reference agencies will have a record of your repayments.
- Lower APR Rates
Although guarantor loans are unsecured, they carry cheaper borrowing rates because security is in place from the guarantor. This makes them much cheaper than other types of bad credit loans. A typical APR would be around 50%.
- Borrow larger amounts
Most short term bad credit loans offer only up to £1,000. A guarantor loan is normally for amounts of up to £5,000.
Choosing a Guarantor Loan
When it comes to choosing a guarantor loan, it’s important to look out for the following, to get the best deal.
Loans are normally calculated by APR Rates, which is a figure worked out by how much you repay on an annual basis. TAR though, explains the Total Amount Repayable, and is a better way of working out the cost of a loan. The TAR rate shows the complete amount your loan will cost, including fees and charges. A good guarantor loan company should make the Total Amount Repayable very clear.
If you wish to settle the loan before the end of the loan period, then you will save money. Always make sure you are allowed to do so without incurring extra fees.
Late Payment Fees
Again, you don’t want to be charged extra for late payment letters or phone calls. Read the small print to find out if these hidden charges are applied.