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Advantages and Disadvantages of Guarantor Loans

Guarantor loans can be incredibly helpful for many people who need to borrow money in a hurry, but there is a lot to learn about them. The more you educate yourself on guarantor loans, the better your chances will be of making the right choice. These loans aren’t for everyone, but thousands of people in the UK enjoy the benefits they offer each year.

How do Guarantor Loans Work?

A traditional loan involves one person borrowing money from a lender and paying it back by a pre-determined date. Guarantor loans involve a third party (the guarantor) who agrees to pay back the remainder of the loan amount if the borrower is not able to. There are both advantages and disadvantages for the borrower and guarantor that you should be aware of.

Advantages of Guarantor Loans

Some of the primary advantages of guarantor loans include:

• High chance of approval: If you are able to find the right person to act as your guarantor, your chances of being approved for the loan are very good. A lot of people have started applying for these loans instead of traditional bank loans because of how easy they are to get. Approval is never guaranteed, but there is a good chance of getting the money you need.
• Borrow more: With the help of a guarantor, you can borrow a lot more than you’d normally be able to. There will be a limit to how much you can borrow, depending on what your income is like.
• Improve your credit: Another huge benefit of guarantor loans is that they can help you to improve your credit rating. If you want to increase your score, make sure that you pay back the loan on time.
• Low rates: A lot of lenders will be far more likely to give you a low interest rate on your loan if you have a guarantor. The rate on your loan will partially determine how likely you are to pay back the money by the due date.
The disadvantages associated with guarantor loans include:
• Coming clean about your finances: Finding a guarantor will require you to disclose your less-than-ideal financial situation with someone you are close to. This can be a fairly difficult conversation to have, though it is necessary.
• Your credit could be damaged: If you do not make your payments on time, your credit could suffer quite a bit as a result. It is imperative that you make at least the minimum payment each month.
• You could end up with a high rate: While many people who get guarantor loans have reasonable rates, this is not always the case. Depending on the lender you choose, you could end up spending quite a bit extra with interest alone.

Managing the Risks

While there are some risks that come with getting a guarantor loan, there are certain ways to manage them. It is important that you take the time to find the right person to act as your guarantor. If you are unable to pay back the rest of your loan for any reason, you need to know that this person will step up and take responsibility. If the guarantor for your loan cannot or will not take over your payments, both of your credit could be affected.

It is also a good idea to spend some time looking for a trustworthy lender for your guarantor loan. There are lots of options to choose from for these lenders, but you need to narrow down your choices by doing some research. Look for a flexible lender who you can negotiate for the best possible terms. By doing this research you will keep the level of risk to a minimum.

Who Should Apply for a Guarantor Loan?

Some people can benefit from guarantor loans more than others. If you have bad credit that prevents you from borrowing money on your own, this is certainly an option to consider. Since you can get money fairly quickly with a guarantor loan, they are good for those who need to pay for an urgent expense. If you are approved for the loan, you should receive your funds within 24-48 hours. These loans can also be a great thing for people who want to buy a house but cannot get approved on their own.

When You Cannot Pay the Loan Back

If you end up in a situation where you are no longer making your payments on time, your lender will request that you begin catching up. It is important to be perfectly honest with the lender if you know you won’t be able to make your payments any longer. In this case the lender will contact the guarantor to ask them to step in. Keep in mind that if your credit is negatively affected by the loan, the guarantor’s credit will be too.

Things for Potential Guarantors to Consider

There are a few important things to consider before someone agrees to become a guarantor for another person’s loan. You need to keep in mind that you’ll be responsible for the person’s debt if they begin falling behind with their payments. You should only agree to become a guarantor if you absolutely trust that the person can pay the money back on time. This type of loan presents a big risk for both parties involved, and it’s important to consider all of them before proceeding.

Finding a Guarantor

If you want to get a guarantor loan, you will need to find someone who the lender will approve as the guarantor. Do you know someone who has good credit, a stable employment history and adequate income? If so, you might want to ask them if they would be willing to act as a guarantor for your loan. This is a big responsibility for the person, so be prepared for them to say no. A lender won’t approve just anyone for this role, so you might need to spend some time looking for the right person.

Why Traditional Business Loans Have Become so Unpopular

If you need to get a loan for your business, going through a bank might not be the best idea. In fact, fewer and fewer businesses that need funds are choosing to go the traditional route for a number of reasons. When you find yourself in need of money for expansion or to get through a difficult period, it’s important to learn what your best options are. Traditional business loans are certainly denying, and you will want to know why.

Complicated Application Process

The application process for getting a traditional loan has become far too complicated. Most banks require an insane amount of paperwork to be filled out and submitted by businesses that need a loan. This process is also very long and time consuming. It can take weeks to get the money you need when going through a bank. The application process alone can stretch out for a long time, and you may not even get approved.

They Cannot Survive in such a Competitive Marketplace

These days there are lots of alternatives to traditional business loans, including crowdfunding and peer-to-peer lending. With the rise of all these different borrowing options, banks are having a very difficult time getting business. There is more competition for these loans than ever before, and it’s definitely not something that is going to change anytime soon.

They Often Require Collateral

A lot of banks require businesses to put up property as collateral in case they are not able to pay their loans back. This property could be your car, home, or even your business itself. Secured loans can be a huge risk for anyone, so you will want to think twice before applying. Even those who are very confident of their ability to repay the loan could find themselves unable to continue making payments. You never know what the future has in store, so it’s better not to get a loan that requires you to risk everything.

A Majority of Businesses Cannot get Approved

It is a fact that the average business doesn’t qualify for a traditional bank loan. The standards that banks have for borrowers have gotten pretty ridiculous. You pretty much need to have a perfect credit score to get approved for a traditional business loan these days. Private lenders tend to have much lower standards for businesses that need funding.

Should I Borrow from a Private Lender?

These days a lot of businesses are turning to private lenders to get the funds they require. Getting a loan through one of these lenders is much easier and less frustrating than going through a bank. If you want to get money for your business as quickly as possible, it is important to at least consider this option. There are lots of reputable private lenders out there that you can borrow from.

Some of the benefits of getting a business loan from a private lender include:

• Bad credit doesn’t disqualify you: Just because you have bad credit doesn’t mean you can’t get the loan you need. A lot of private lenders offer loans for businesses regardless of what their credit is like. Many young people who need money for startup businesses don’t have much credit at all, but they are getting funding from private lenders.
• Flexibility: Private lenders tend to be a lot more flexible than banks when it comes to working with borrowers on an individual basis. You will find that these lenders are more willing to negotiate the terms of your loan so you can get what you need. One of the biggest problems with banks is that they are too stringent.
• Quick and easy application process: Filling out and submitting an application for a business loan through a private lender is very simple and doesn’t take long at all. You can go online to submit your application, and you’ll hear back from the lender within 24 hours. Those who apply for one of these loans through a bank might not get a response for weeks. If you are approved for a loan, you can expect to receive your funds in a similar amount of time.
• Reputable lenders: There are many reputable and trustworthy private lenders that you can borrow from. It is important to be aware of scammers, but there are lots of great opportunities.

The fact is that private lenders have a lot to offer when compared to banks and even credit unions. An increasing number of businesses are going online to get the funding they need from private lenders, and for good reason. These lenders make it much easier to get the money you require without having to jump through a lot of unnecessary hoops.

Business loans from private lenders can be much more affordable as well. If you need to save all the money you can on your next loan, this is probably the best option you have. You will need to find the right lender, but it’s well worth the time and effort when you consider the benefits.

Peer-to-Peer Lending

You will find that peer-to-peer lending has a lot to offer for those who need a business loan. These platforms connect businesses and individuals who need to borrow money with reputable lenders that can match their needs. P2P lending has grown quite a bit in popularity over the years because of how well it generally works for most people. You should at least explore this option before making a final decision.

Is it ever a Good Idea to Apply for a Bank Loan?

Sometimes banks can be helpful if you need a business loan, but only under very specific circumstances. If you aren’t in a big hurry to get funds and have good or great credit, it is an option you should consider. Banks tend to offer better interest rates than private lenders, but they aren’t of much help to the average person. Those who have bad credit will likely get their bank loan rejected.