Nothing will come your way of getting a loan when your credit history and repaying capacity are above par, but a lender may ask you to arrange a guarantor when your credit report is not stellar. Authorities have warned that guarantor loans can be as detrimental as payday loans. Fearing that they will be drawn into an endless debt cycle, nobody will act as a guarantor.
Of course, your chances of being accepted for a loan are bleak with a poor credit score, but you still have the option to apply for a no guarantor loan. There are various types of short-term loans and they all seem more or less the same. However, they all have some differences.
Meaning of no-guarantor loans
A no-guarantor loan is a small personal loan aimed at keeping things ticking along when the money is tight. These loans do not require a guarantor who will be liable to pay off the debt when you fail. You owe the 100% value of the loan and you are fully responsible for the payment of the loan.
REMEMBER THAT FALLING BEHIND PAYMENTS WILL WREAK HAVOC ON YOUR CREDIT HISTORY, MAKING IT MORE DIFFICULT FOR YOU TO BORROW MONEY.
A no-guarantor loan is similar to a bad credit loan. In fact, both terms are interchangeable. Loans with no guarantor from a direct lender are unsecured loans and they are aimed at bad credit borrowers.
A lender would ask you to arrange a guarantor when your credit history is blemished. These loans are generally popularly sought after by bad credit people. You can address these loans as bad credit loans as well. There is no difference between a no-guarantor loan and a bad credit loan.
Is a no-guarantor loan the same as a payday loan?
Payday loans also do not require a guarantor, so you can say them as a no-guarantor loan, but they are technically the same. Some features make them different from these loans. Payday loans are very small loans. They are paid back in full on the due date. You do not need to run a credit check to get the nod for these loans. However, these loans can be very expensive.
YOU SHOULD THINK TWICE BEFORE GOING DOWN THIS ROUTE.
A no-guarantor loan may have the same features but they do involve a credit check. The lending decision is subject to your repaying capacity as well as credit checks. A lender may refuse you the loan if you do not meet the approval criteria. Interest rates are also lower than that of payday loans.
Although no-guarantor loans are riskier than payday loans, do not forget that they are still expensive due to bad credit ratings. Bad credit loans from direct lenders in the UK may or may not cost you a fortune, depending on your current credit score.
Upsides of no-guarantor loans
Here are the benefits:
- No hassle of finding a guarantor
These loans do not require a guarantor, so you are completely responsible for your loan. You do not need to embroil yourself in finding someone willing to take on the risk by signing the agreement. Moreover, you do not need to have fear of ruining your relationship with the person acting as a guarantor. You are absolutely responsible to pay it back in full.
- No collateral is required
No-guarantor loans are unsecured. It means you do not need to put down any valuable asset to borrow money. Secured loans can be more affordable but there is a risk of losing your asset in case you make a default. However, you don’t need to always get money at lower interest rates as it depends on multiple factors such as your credit history, income sources, and the like.
- You can borrow a larger sum of money
Another benefit of no-guarantor loans is that you can borrow a larger sum of money. Most other short-term loans do not require you to borrow a large sum of money. The maximum borrowing amount is not more than £700. A few lenders can loan up to worth £1,000.
However, no-guarantor loans will require you to borrow more than £1,000. It means you can fund larger needs as well. Not all lenders may offer you a large sum, but CashFacts does so. You will get money based on your affordability.
- Fast approval
Unlike guarantors, the processing speed of no-guarantor loans is faster. You do not need to enter into additional formalities. In the case of a guarantor loan, the process is often lengthy and complicated. Of course, when all of these formalities are removed from the process, you will get money transferred to your account as soon as possible.
You just need to submit the request and then the lender will approach you when they find you are a potential borrower.
Downsides of no-guarantor loans
Here are the disadvantages of these loans:
- High interest rates
No-guarantor loans carry very high interest rates. You can avail of lower interest rates when you arrange a guarantor provided they have got a decent credit file. Interest rates may vary by lender due to fees. Make sure you compare the interest rate at the time of using these loans.
- The borrowing amount could be restricted
Although these loans come with a larger borrowing sum, it is not necessary that you will get through. A lender will carefully examine your credit history and repaying capacity. Of course, you will not be able to borrow a larger sum when your budget does not have much scope to repay it.
As you have already a poor credit history, a lender cannot be so sure about timely payments. As a result, they could lower the lending amount. Funding big expenses can be a bit tough.
- You cannot use them for planned expenditure
No-guarantor loans are small emergency loans. Even if a lender does not bother to loan you a higher sum, you cannot use them for planned big expenses. They are particularly ideal for unexpected expenses. For instance, you can use them when your wedding budget has fallen short of some cash.
A lender will ask you the reason why you want to use the loan. It is recommended that you be truthful as ultimately you will benefit from honesty and transparency.
- Not wider options
Most of the lenders may turn you down if you do not arrange a guarantor. A few lenders are out there who will be willing to provide you with these loans. So, you do not have many options to consider.
The takeaway
- No-guarantor loans are called bad credit loans as well as they are aimed at bad credit borrowers.
- You may not have a wide range of options to compare, so it can be challenging to get the best deal.
- You can get a chance to borrow a larger sum but only a few lenders may allow for it.
- It is always recommended that you keep your credit score in good condition, so you can borrow money at the most competitive interest rates.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
