Guarantor loans are proving incredibly popular and represent the fastest growing sector of the UK credit market. Thousands of people are using guarantor loans because they have found themselves cut out of the mainstream high street bank lending market since the recession of 2008-2010.
Millions of people who would previously have been classified as responsible borrowers have since the banks choked off credit following the financial crisis, now found themselves rejected by the banks when applying for loans and other forms of borrowing. Despite government action and repeated interventions by financial watchdogs, the major banks have continued to impose strict lending criteria on all borrowers. Many other people have found that they have been unable to access credit because of a minor mistake they made at some point in the past. This might have involved a late credit card repayment or forgetting to register on the electoral roll.
Many young people – fresh out of university or college – have found themselves refused credit because they are deemed not to have a sufficient record of borrowing and repayments meaning that none of the major financial organizations are willing to consider them for a loan. They are caught in the Catch 22 situation of being unable to get credit because they’ve never had it before.
Guarantor loans are beginning to plug these huge holes left in the credit market by the risk-averse behavior of the major banks. This form of lending allows people with either no credit record at all or those with impaired ratings to put friends, friends, family members or even people they work with up as guarantors on borrowing. A guarantor with a sound record of financial management provides the lender with the security of knowing that the loan will continue to be repaid even if the borrower’s circumstances change drastically or he or she gets into financial difficulty. The applicant also benefits because having a guarantor in good financial standing behind them means they will have access to lower fees and interest charges and higher loan amounts than they might be offered to borrowers by other subprime lenders.
The lender will run a credit check on the guarantor – not the applicant – meaning that, in most circumstances, your financial record will not be a hindrance to securing the money you need.
The guarantor loan market grew by 60% in 2015 and that level of growth is expected to continue throughout this year. That means that more and more lenders are entering the market – most of them offering rapid online approvals with the loan being in the borrower’s bank account within a day or even a matter of hours.
If you’ve got a poor credit record and have been repeatedly turned down for a standard personal loan or credit card, then a guarantor loan could be for you. It will give you the opportunity to repair your credit record by making regular repayments on the loan. If you can find a guarantor who has a good credit record and is willing to act as your security, then you will find that a guarantor loan will give you access to lower interest charges and higher loan amounts than with other forms of bad credit lending. You may be unable to get offered a personal loan or a credit card but there’s a good chance that, once you find a suitable guarantor, you will be able to apply successfully for a guarantor loan. Then, when your repayments start, these will count against your credit record and not that of the lender meaning that, over time, you’ll be able to rebuild your record to a good or even excellent one.
Other people have no credit record at all because they have not yet borrowed any money. In these cases, many of the major financial institutions will be very reluctant to lend leaving the applicant between a rock and a hard place – they can’t borrow money because they don’t have a credit record but they can’t develop a credit record without borrowing money.
Other younger people may who have just got their first mortgage but have seen their credit records suffer because the high street banks will consider that the amount they have in debt is high enough without taking on extra borrowing. This means that many people find it almost impossible to get back into the credit market when they have just bought their first home.
Guarantor loans provide a sensible and safe way out of these credit traps because the borrower uses the good credit record of somebody who is prepared to guarantee their borrowing to act as security when making their application. This gives them access to lower APRs, large loan amounts, and longer repayment schedules than with other subprime loans.
If you need a larger loan
Unsecured loans offered to people with bad credit records – tend to only be available for smaller amounts. But a guarantor loan can give you access to sums of up to £12,000 depending on your circumstances. This makes them particularly suitable for those who need to buy a new car suddenly, guarantor loans can give you access to up to £12,000 of finance – particularly useful for people who are facing a major life change like a new baby, a car breakdown, debt consolidation or want to renovate their first house.
If you are finding it hard to get a loan through a traditional route, then a guarantor loan could be the answer. If you have got a guarantor with a sound credit record then there are a large number of potential lenders who would be willing to consider your application.
Article provided by Mike James, an independent content writer working together with technology-led finance broker Solution Loans; a company with many years experiences in advising clients of their most suitable types of credit.