What has happened to all of the trust? Whereas successfully applying for a loan used to be as easy as 1-2-3, nowadays unless you can tick all of the boxes with your current credit rating and history, the chances are you will find obtaining a loan from a High Street lender almost impossible.
There are now a huge number of people based in the UK who are excluded from the very best loan deals because they are viewed as too great a risk by lenders.
Where Do I Turn?
If you find yourself in a situation like this, all is not lost. There are still a number of alternatives out which can help you to meet your financial needs but it is crucial to ensure that choose the right one.
To balance out the perceived risk of lending to someone with a bad credit rating, many UK based lenders have created something known as a ‘bad credit loan’.
All Shapes & Sizes
Bad credit loans come in all shapes and sizes. From guarantor loans to payday loans, from logbook loans to doorstep loans, there many different loans available to those who previously would have been left out in the financial cold.
The difference between these and standard personal loans is that to counterbalance the increased risk to the lender, the lender will impose a considerably higher APR.
This is really the key question, because in their desperation to obtain a loan, common sense can occasionally disappear for some borrowers, and with some payday loans currently available with an APR of approx 5000%, keeping your eyes open and your sense sharp can save you an awful lot of money!
What Else Then?
Whilst many loans currently use either a very high APR or some form of security – your car in the case of a logbook loan – to reduce the risk to the lender, there is now another type of loan available which fills the gap between extremely high cost loans and the unavailable loans at your bank.
These loans are called Guarantor Loans and instead of using the aforementioned methods of reducing risk to the lender, the lender instead insists on the presence of a third party who will co-sign the loan agreement stating that they will repay the loan should the borrower fail to do so.
Are Guarantor Loans Cheaper?
The difference in cost between variations of bad credit loan can be quite startling and this is evidenced perfectly by the difference between a payday loan and a guarantor loan.
With payday loan APR stretching up to 5000% in some cases, and guarantor loans available for approximately 50% APR, the difference is there for all to see.
Far More Flexible
Guarantor loans are also available in much greater amounts than other loans. Generally £7,500 is the limit, with some lenders even going to £10,000 repayable over 5 years, therefore these loans are absolutely perfect for a wide variety of uses including debt consolidation, vehicle purchases, holidays etc.
Therefore whilst clever advertising would love to you believe that bad credit loans without a guarantor are your only option, a far better and cheaper option exists for anyone who can find someone to stand beside their loan application.
Bio – Amanda Gillam
I work as a blog writer for a finance company called http://solution-loans.co.uk which specialises in Guarantor Loans. I hold a degree in financial management and enjoy writing about a variety of topics including finance, transport, travel, sport and business.