*Representative Example £3,000 over 3 years, representative 48.9% APR fixed. Monthly payment £145.17. The interest is 10% per annum fixed and service fee is 30.48% per annum fixed. Interest payable £549.95 and service fee payable £1,676.17. Total repayable £5,226.12
We look at both homeowner and non homeowner guarantor loans and outline the key differences betweem them.
Guarantor loans have surged in popularity since the recession, when they made a comeback as a viable form of borrowing. This type of loan is actually one of the oldest forms of borrowing, but it fell out of favour when computers came in and banks/building societies were able to check lending histories and credentials remotely. In the past, you would have someone – who would usually be well known to the bank manager – to vouch for your ability to pay back the loan. The best guarantor loans still work with this general principle, which has been handy for those who may have a less-than-perfect credit history but who need to borrow larger amounts (from £1,000 to £5,000).
When guarantor loans were once again made available in the lending market, lenders would only accept homeowner guarantors as support for the application. This means that, if you wanted to borrow money through a guarantor lender, you would need to find a family member or close friend who owned their own home to stand as your guarantor. Initially, this was a handy way of gauging the financial standing of the guarantor – the idea was if they own a home outright or are paying a mortgage, then they must have a certain level of financial stability in order to do so. Best guarantor loan practice involves making sure that both the main borrower and the guarantor find the payments affordable. Of course, in the case of the guarantor, this is usually just a precaution. In reality they may never be asked to make a payment as long as the loan is managed properly by the main borrower.
Homeowner guarantors are still encouraged and accepted, and you may find that you get a preferential rate with a homeowner guarantor rather than one who is a tenant. This is because it’s important to lenders to have proof of identity and address; things which are easier to confirm when they own a property. Tenant guarantors may be subject to a few more checks or questions about their finances during the application stage, which helps the guarantor loan company to lend fairly and reduce risk for both themselves and the customers involved.
Tenant guarantor loans have been around for a relatively short amount of time but are hugely useful to those who may not have close friends and family who own their home. A huge amount of people rent their properties, whether that’s through the council, a housing scheme or a private landlord. Renting is so commonplace now, that some customers were struggling to find guarantors for their loans. This meant that – for those without a decent credit history – their options for borrowing became very limited, often pushing them towards expensive payday or logbook loans. The best guarantor loans can be seen as those which give the customer plenty of choice when it comes to who their guarantor can be and how much they can potentially borrow. Lenders who are open to tenant guarantors are able to make funds available to more people, allowing them to 1. Borrow the amount they need, 2. Build up their credit history with manageable monthly installments and 3. Stop people from turning to more expensive, shorter term credit which may cause a ‘debt spiral’.
When used and managed properly, guarantor loans can be a great way for borrowers to demonstrate their reliability, often meaning that they don’t need a guarantor in order to borrow the amount they want at a reasonable rate the next time they require credit.
If you’re looking for a guarantor loan and you know that you can get a homeowner guarantor to help you out, then you have plenty of choice when it comes to lenders. All guarantor loan lenders will accept homeowner guarantors, many of them exclusively. Having a wider choice like this is great, but it also means you’ll have more thinking to do when deciding which lender you want to borrow from. Including your guarantor in this decision-making process can help, as they will also need to sign a contract with the company. If either of you are uncomfortable with the way a particular lender does something, then it may be best to compromise and find a new guarantor loan company from which to borrow.
The best guarantor loans for those with a homeowner guarantor are from lenders who are committed to Treating Customers Fairly. This is part of the Financial Conduct Authority’s best practice guidelines, and legal, registered lenders will be expected to follow these guidelines closely. They ensure fair treatment and consideration of affordability not only for the borrower but the guarantor as well. You should always check that a lender is registered with the FCA, as without this they are operating illegally.
If you already have a tenant guarantor or if you know that you can only ask friends/family who rent to stand as support for your application, then your choices are slightly more limited. Not all guarantor lenders accept tenant guarantors, so you’ll need to do a bit of research to find out what different lenders will accept. There will be some who have been offering tenant guarantor loans for a longer period of time than others, but what’s important is that they’re a decent company with the right loan amount, pay back term and monthly instalment amount for your circumstances.
Some major lenders, like Guarantor My Loan, will be adopting tenant guarantor loans as a new product, so it’s important to ask the lender directly if it’s something they offer. Sometimes tenant guarantor loans are not advertised widely, and you may only be able to find the arrangement you want through a direct enquiry. As with homeowner guarantors, a tenant guarantor should have a decent monthly income, have a good credit history and are financially stable (they aren’t borrowing from payday lenders regularly to make ends meet, for example).
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GuarantorMy Loan is a Peer to Peer lending platform that matches those wanting to lend with those wanting to borrow.
We specialise in arranging Guarantor Loans for customers and have been lending since August 2014.
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