A Complete Guide to Guarantor Loans

This is all you need to know about guarantor loans from the experts. Including what they are, how they work and how to apply for a Guarantor loan.

Back in the late 20th century, before the creation of digital credit scores and computers, loans were given to individuals by banks based solely on trust. Whilst a lot has changed since then, guarantor loans have made a comeback – with traditional lending put at the centre. Guarantor Loans can be ideal for people with bad, poor or no credit history. All you need is someone who can be your Guarantor. These type of loans give people a chance to apply for a loan without paying the ridiculously high interest rates of payday loans or some store cards and credit cards. A leading Guarantor Loan company – TFS Loans, offers guarantor loans for those with bad credit, the chance to borrow at a Representative APR of 39.9%.

There are significant differences between different loan types that you need to be aware of before taking one out.

This blog post will go through everything about Guarantor Loans. From what a guarantor loan is, to how to qualify for one. Our aim is to provide potential customers the essential information they need before making a decision. By better understanding a loan, you’ll be able to make the call on if it is right for you, or not. Welcome to your free guide to guarantor loans.

What is a Guarantor Loan?

We’ll be breaking down what guarantor loans are in this section. In short, guarantor loans are personal and unsecure loans. Personal loans are granted by banks and other lenders to be used for almost anything – as long as it’s legal. The term unsecure, regarding loans, means that you don’t have to put up collateral against the loan. Unlike mortgages, which are secure loans, where your house is the collateral for the loan – failing to make repayments on your mortgage can lead to your home being repossessed. This usually means that unsecure loans are for smaller amounts of money, usually between £1,000 and £15,000. This means that personal loans are used for weddings, car loans, debt consolidation etc. they’re ideal for smaller things that you need but can’t afford to pay in one go.

But how do guarantor loans differ from other kinds of personal loans? Well, they’re designed to disregard the applicant’s credit history – yes, you read that right. Your credit score has very little impact on your application for a guarantor loan. In fact, guarantor loans are really only ideal for those with bad credit. Guarantor loans have considerably lower representative APRs than other bad credit lenders. The loans that TFS offer, have a representative APR of 39.9% – but it’s dependent on how much you want to borrow, and how long you want to borrow it for. Rates vary from 29.9% to 69.9%. Using their loan calculator, you can see what your interest will be on the loan amount you want to borrow.

Is a Guarantor Loan Right for Me?

Everyone’s individual financial state is different. Different credit scores, different bills to pay, and different options available. As we’ve said before, guarantor loans may only suit those with bad credit. There are more lending options available to those with a good credit score, so you can afford to look around for a loan. Banks and other lenders judge their loan applicants based on their credit score. Then, they’ll offer you a loan at a rate that reflects your credit score. 39.9% APR Representative.

However, there are not a lot of options available to those with bad credit, especially for larger amounts. Payday loans are costly methods to borrow smaller amounts of money, but there is not a lot out there for mid to large amounts of money. The maximum amount that most payday loan companies pay out is around £1,000, not ideal for a wedding or car loan. However, with a guarantor loan, you can borrow larger amounts of money, even with bad credit. TFS Loans currently offers the largest Guarantor loans in the UK – up to £15,000.

Whilst guarantor loans are ideal for those with bad credit, if you take out a loan you cannot afford to repay, it can cause you serious money problems. At TFS Loans, we advise you seek independent financial advice before taking out a loan.

What can I use my loan for?

Guarantor loans are personal loans, meaning they can be used for almost anything – as long as it’s legal. Many of our customers use them for whatever purpose they see fit -including debt consolidation. Using your loan to consolidate any outstanding debt makes managing payments a lot easier. If you’re struggling with repayments on multiple loans or credit cards, a debt consolidation loan can help merge those costs into one manageable monthly payment. Making it easier to keep track of and stop your interest charges increasing on other loans.

Some find themselves using their loan for a car, to put towards a wedding or to use for a holiday. The loan is yours to use as you see fit. Self-employed business owners even use their loans to put towards new ventures or to finance them through a tough patch. A guarantor loan is yours to use, for whatever you need. Just make sure you’re in the right position to borrow money and more importantly, you can afford to pay it back.

Who can be a Guarantor for a Loan?

If you’re looking into taking out a guarantor loan, you’re probably wondering what the catch is? The clue is in the name… You’ll have to provide a guarantor with your loan application. For the lender, this guarantees the loan is going to be repaid. Your guarantor will sign to agree that should you be unable to meet a monthly repayment on your loan, your guarantor will cover it for you.

As for a guarantor’s criteria, TFS ask that they are:

  • Between the ages of 18-78 at the start and end of the loan
  • A UK Homeowner
  • Have good credit
  • In receipt of a regular income
  • Can afford to pay the loan back, if the Borrower cannot.

Your lender can be a friend or family member, a partner, your landlord or even a colleague. Borrowing money with a guarantor ensures a loan company will have their investment returned. It allows TFS Loans, and other bad credit lenders, to operate without relying on credit history or credit scores, making it easier for customers to borrow money. TFS has produced a useful page about how you can find a Guarantor that is worth taking a look at. They have also created a Guarantor hub for Guarantors, to answer all the questions that they may have, from what a Guarantor loan is, to what they will need to do as part of the application process

How does it work?

When you apply for a loan, with a guarantor to support your application, once approved, the funds will be transferred into your guarantor’s account. Sometimes within 24 hours of applying. If you have a guarantor who has agreed to help before you sign up for the loan, then your application will move along a lot faster. Once accepted and the loan is granted, you’ll pay back the loan in monthly instalments over a selected period of time. The TFS loan calculator allows you to choose the amount to borrow and over how long you want to borrow it. It couldn’t be easier to apply and be approved.

Pros and Cons

As with anything, there are positives and negatives to guarantor loans. Whilst the good outweighs the bad, it’s important to outline what both are, before you take out a loan. Whilst guarantor loans are great for those with bad credit, they can be costly. With a Representative APR of 39.9% for a TFS Loan, you will be paying back significantly more than you would for some other lending products. However, these options are for those with good credit. So, whilst costly – if you need a loan and have bad credit, then a guarantor loan is one of the fairest options available to you. Another issue that might arise from a guarantor loan is the potential of damaging relationships. If you do not meet repayments frequently and it falls on your guarantor to pay, they may become increasingly displeased with this. So, be aware that you, and you alone, must be responsible for repayments. Being a guarantor does not have to be a huge ask and most people would be happy to help you out – as long as you meet your repayments. Taking out a guarantor loan can improve your credit. By repaying your loan in full and on time every month, your credit score will slowly improve over the loan term, as long as you are also continuing to pay everything else.

 

Whilst borrowing money may not be ideal for everyone, if you have bad credit and are in need of a loan then guarantor loans could be the ideal option for you. To see how much you could borrow, at what cost, use the TFS loan calculator. For more information on guarantor loans, TFS has a comprehensive FAQs section that is worth a look.

Author: Robert Smoker joined TFS Loans as CEO in September 2014 having been with Brown Shipley & Co Ltd a prestigious UK Private Bank for over 36 years. Robert joined Brown Shipley in 1977 as a Management Trainee in their lending and trade finance division. He was appointed Head of Lending in 1990 and restructured their lending activity prior to a number of business acquisitions in 2001 as the Bank focused on providing wealth management and private banking services.

He was appointed as an executive director in 2002 with board responsibility for Compliance and Risk Management and latterly Audit in 2004. He was responsible for ensuring the Bank maintained an exemplary regulatory reputation following the transition to FSA in November 2001 and the introduction of the PRA in 2010 following the Banking crisis.

Robert remained at Board level until 2014 and following the acquisition of Brown Shipley by Qatari investors in 2012 was given responsibility for the investment management, banking, financial planning and pensions teams in the London office to help implement the group’s growth strategy.