Alternatives to guarantor loans
While guarantor loans are a great option for certain circumstances, there are alternatives. This means that these types of loans do not need to be your first port of call. Here are some other possible lending options and scenarios that are worth looking into before you make any decisions.
Other unsecured loans
If you’ve had issues with borrowing in the past, you might assume that having a guarantor is the only way you’d be accepted for a loan. Take the time to check your credit rating though, as you might be surprised at your current score. If you start off knowing exactly where you stand, you’ll be better placed to weigh up all the suitable options.
A secured loan
Secured loans are usually better for larger sums of money of £10,000 or more. They need an asset, such as a house, car or land to secure the loan. The consequences of not keeping up with repayments though are serious. You could lose your asset and it could impact your credit score. Interest rates vary and will depend on the length of repayment of the loan, how much you want to borrow and how much your said asset is worth. You may also have to pay extra fees, such as a valuation fee, a broker fee and sometimes a lender fee, depending on the type of secured loan. Check the small print before you make a decision.
'Bad credit' card
Even if you have CCJs you may still be able to take out what’s known as a ‘bad credit’ or ‘credit builder card’. These cards typically come with quite high interest rates and lower credit limits than most. But if you’re not looking to borrow a substantially large sum, you may find they fit your circumstances well. Some cards will even reward you for good borrowing behaviour, lowering your interest rate or increasing your credit limit once you have proven yourself to be a good borrower.
Payday loans allow you to borrow a relatively small amount over a period of up to six weeks or less. Though the interest rates on these type of loans are now capped, the cost of borrowing remains high. Some lenders tend to view payday loan use as an indicator that you are not great at managing money. So, if you do use payday loans, ensure you pay them back on time, every time and beware that if you do pursue this type of borrowing, it could give your credit rating a knock.
A short-term loan is usually set to be repaid within a year. They tend to be for smaller amounts and used in more urgent situations, although this is not always the case. They are suitable for people who find themselves with a sudden expense that they can’t afford, such as a broken-down boiler or a car repair and need access to funds quite quickly. As there’s less time to pay interest on repayments, short-term loans usually come with a higher rate of interest than other types of loan, so comparing offers from different lenders should be an important part of your research.
Bad credit loans
There’s technically no such thing as a bad credit loan. There are however, loans for people with bad, little or no credit. These loans typically have greater restrictions and higher interest rates, as you are seen as a high-risk borrower. They are good however if you have poor credit and need access to funds. Managing them responsibly can help to improve your credit score.
If you are in receipt of benefits you may be able to advance extra funds through the Universal Credit system. You will of course need to pay this borrowing back. Your eligibility for a budgeting loan will depend on a number of factors and to be accepted for a loan your reason for borrowing must fall within the scheme’s predetermined categories. Loans can be sought for things like paying for transport costs to get you to a new job and making sure you look the part when you get to the office. You can apply for a budgeting loan by visiting your local Jobcentre Plus.
Credit Unions operate on a not-for-profit basis. They typically offer loans and saving options to their local communities. If you have one in your area, you may be eligible to apply for one of its products. To do so you may need to fulfil certain criteria such as working in the public sector or within a specific profession. You may also need to have been saving with the organisation for a set amount of time before you can access a loan.
While it might not feel like the ideal scenario, could you put off buying something right now and save for it instead? If you can, you could save money on interest and avoid increasing your debt levels.
If you’re already struggling with debt and find it difficult to live day-to-day without relying on credit to get you through or you’re finding it increasingly difficult to meet repayments on your borrowing, taking out more credit is rarely the answer unless you are considering a debt consolidation loan. If your financial situation has become a source of worry, seek advice by reaching out to free and impartial government resources, such as The Money Advice Service or your local Citizens Advice Bureau. You may also benefit from seeking help from debt charities, such as Step Change or the National Debtline.
Written by Robert Bester
Published on 23rd March 2018