There are many loan options available and it can be
difficult to know which might be the most suitable for you. It is therefore
worth finding out a bit about the different loan types and then you can decide
if it will work for you. This is something that you might want to do for
guarantor loans which are a relatively new type of loan and therefore one that
many people do not know a lot about. Then you will be able to make the decision
as to whether this loan will be a suitable one for you.
What is a guarantor loan?
A guarantor loan is a loan designed for those with a poor credit record. As they normally cannot borrow significant sums of money, this loan is designed so that they can. It does require that the borrower nominate a guarantor. The guarantor needs to have a good credit record and be prepared to cover the cost of any repayments that the borrower is not able to make. Often the guarantor will be a family member but anyone can do it as long as the lender approves them. The loan will be repaid in instalments.
Who do guarantor loans suit?
The loans are designed to help those that have a poor credit record but need to borrow a significant sum of money. Normally, without a good credit record and with no collateral, borrowing options are very limited and this loan will extend those options beyond what is normally available. If you need to borrow a significant amount of money but cannot use a conventional loan, then this loan could be the answer.
Are they right for me?
Knowing whether a particular loan is right for you is a very personal thing. It will really depend on exactly what you are looking for in a loan and what you can afford and feel will offer good value for money. It is therefore worth getting together some information first.
- How much to borrow? – to start with you
need to think about how much you want to borrow. It is likely that there is a
specific thing that you are looking to buy and you will know how much that
costs. However, it could be that you have some money that you can put towards
it so work out the difference and how much therefore that you will need to
borrow. It can often be tempting to borrow a bit more than you need so that you
can treat yourself and this can be a problem. It is worth remembering that when
you borrow money you will have to pay it back and pay interest on it and so you
should borrow the minimum that you need to so that you find it easier and
cheaper to repay.
- How long for? – It is possible to choose
different repayment terms depending on the type of loan that you pick. Some
loans can be paid back really quickly, but many people like a bit longer to
repay so that they can mange the repayments more easily.
- Features of lender? – some people are
really interested in what the lender has to offer. It might be that they want a
lender they have heard of, has a good reputation or has good customer service.
It might be worth thinking about whether there are any features of lenders that
you think are important as well.
- Value for money? – many people just look
at the cost of a loan and while it is important to know how much things are it
is also important to think about what you are getting for that money. You need
to decide whether you will be prepared to pay more money for certain loan
features. It might be the case that you will not have to and a suitable loan
can be found cheaply but it may be that you will need to pay a bit more to get
what you want.
- Can I afford repayments? – it is really
important to make sure that the loan you get is affordable. You need to find
out how much you will be expected to pay and how often so that you will be able
to check whether this is something that you can afford. You will also have to
take a look at your finances and work out how much you will be able to afford
to repay. You will need to look at how much income you have coming in normally
and how much you usually pay out and then you will know whether you normally
will have enough money to cover those repayments.
There is a lot to think about, but it is worth the effort as
if you pick the right loan you will make sure that you have a positive
There are lots of different types of loans to choose from
and it is therefore not confusing that there could be some confusion over which
loan might be the most suitable for us. There are lots of different lenders as
well and we will have heard of some types of loans and lenders and not others.
We can tend to opt for using lenders that we have heard of as well as loan
types that we are familiar with because we know what to expect from them.
However, this does limit our options because we will not be open to try all of
the loans or even considering them. One set of loans which is very often
ignored is short-term loans. These can be compared to longer term loans in
order for you to decide whether you feel that they will be a good choice for
you. It is a good idea to have a good understanding of the difference between
them so that you can decide which might be the best type for you.
Short-term loans are often made available to those people that have poor credit ratings and therefore may not be accepted for other loans. That is not to say that those with good credit ratings are not allowed them, but they do open doors for those who might think that they otherwise would not be able to borrow money. Although they have to do a credit check, they will usually not have many rules on who they will pick apart form checking age, ID, that they have some sort of income and that they have a UK bank account as well as living in the UK. Other than that, they will normally not worry about much else and lend to most people that apply.
Quick to arrange
A short-term loan is usually really quick to arrange. This is because they will act fast on your behalf. Many short-term loans came about because people needed money in an emergency and so there was an understanding that they would have to be arranged quickly in order to fit this requirement. Short-term lenders will therefore often be able to organise loans 24/7 so there are no worries about waiting for business hours. They will also arrange them quickly, possibly in a few hours but they will not normally take more than a few days at most. If you do need money really quickly, then it is best to check with the lender to find out how long it is likely to take as you may find that some lenders will be much quicker than others to provide you with the money that you need.
The repayment term refers to how long it will take to repay the loan. As short-term loans are often for smaller amounts of money, then they will be repaid quickly. This is a big advantage for those people that do not like being in debt and would rather get out of it as quickly as possible. It will also be useful if you know that you will need to spend a big amount of money in the near future and you want to be free of debt by then.
The repayments can be different to a standard loan. With some short term loans you will make one large repayment and then the debt will all be cleared really quickly. With others you will make regular repayments. This is different to some more traditional loans where you might pay regular repayments but you may also make just a minimum payment of interest and repay the rest when you have the money available such as with an interest only mortgage or a credit card. Different styles of repayment suit different people and so it is good to be aware of the different options do that you can choose something that will suit you.
The cost of loans really varies. Short-term loans are known for being expensive but this can depend on what you are comparing them to. If you only hold a loan for a small amount of time then you will not have to pay so much in interest compared with a loan that you hold for decades, such as a mortgage. Although mortgage interest is lower, as you pay it for so long, when you add up the amount that you have paid it will be much bigger. So, make sure that you calculate how much you will be paying in costs and this will allow you to compare properly.
As there are so many differences, it can be really worth
understanding all types of loan and then when you do need to borrow money you
will be able to make an informed decision as to which will suit your needs the
best. You may have a feeling about which will be best but unless you understand
all of the options you may find that you are paying out more than necessary.