Making your way into the real world isn’t cheap. Luckily, there’s some great lending options out there for those starting adult life. Read this post to find out your options.
Garnered affection for guarantor loans?
Summer Solstice is behind us, Love Island nears its finale and Brexit is well… Brexit. Despite the sun setting on the UK’s favourite jamboree of adult blather (we’re not talking about the latter), for a lot of people, reality looms hard as we approach Summer’s twilight. While for most folk under the age of 16 this means a fresh pair of school shoes and a new timetable, for many young persons who have just finished their degrees and are about to set sail into the unchartered waters of adult life, financial burdens weigh heavy.
‘There is a decisive difference between the loans supplied by private lenders and the loans supplied by a government agency’ once wrote Henry Hazlitt. ‘Each private lender risks his own funds.’ One wonders what Hazlitt would make of the financial predicaments which face so many young people today.
Whether they’re graduates, starting a family or simply wanting to make their own way in the world, the route into *ahem* real adult life can be difficult to navigate without imbursement from the bank of mum and dad. Consequences may follow. Bad credit ratings lay waiting for those who pay back their loans late, default on payments and a plethora of other reasons. Yet, with so many high street lenders willing to take advantage by offering loans with nauseating APR rates and demand for property as an indemnity against the loan, where and what can we turn to?
What loans should young people take out?
The repercussions of a bad credit rating are often heavy. This may often mean that many young people needing to take out a loan to pay rent arrears or any existing debts have their options slashed for what loans they can take out. But which ones should they go for? Payday loans are seen as dangerous due to the interest rates thrust upon those who are usually in a precarious financial state. While they may be a useful means of covering any existing short-term debts, high APR rates imposed by lenders are commonplace and are masked by the ease at which they can be taken out.
What is the best option for young people?
Rejoice! I give you the more the desirable guarantor loan. These are essentially loans that operate on a trust basis where any existing credit history from the recipient is unnecessary. As a result, guarantor loans can seem a very attractive proposition for those with a poor credit score, with young people often integrated into that category. This can be an ideal medium for people who need mid to long-term loans that may not normally qualify for loans due to a bad credit score.
Further to this, the interest rates on guarantor loans are much lower than other bad credit loans such as payday loans. A study by the BBC in December 2013 found that Payday loans are typically 1000% to 6000% APR. It’s important to stress that with guarantor loans it is highly unlikely that there will be any concealed charges by the guarantor, thus providing the recipient with another layer of security that may lay hidden with the T&Cs of another loan application.
Who can be a guarantor for a loan?
You may be wondering who can be a guarantor for a loan? Most loan providers will require these criteria for someone to be an eligible guarantor:
- A UK resident and homeowner
- Between the ages of 18-78
- Have good credit
- Have a UK based bank account and debit card
- Be in receipt of an income
- Be financially independent of the borrower (i.e. of independent financial means and with own bank account)
To summarise, this means that any person who meets these criteria can be your guarantor. This can take the form of a friend, relative or partner so long as they are NOT your husband or wife. This can offer a great deal of flexibility for those seeking guarantor loans, as the recipient will be in a position to find a guarantor who will be willing to meet one’s loan commitments if ever the need arises.
Though for this to work well it is important to consider the financial position and personal circumstances of the guarantor and if they will be able to offer the support that you may need should the situation ever arise. This should involve taking into account their financial suitability, meaning that for your application to be accepted your guarantor will need a good credit history. This should also involve ascertaining that the guarantor understands their responsibilities towards the recipient and any potential financial risks that may fall upon them should you be unable to make a payment.
Also, you must ensure that your guarantor is employed in the UK and earning over £400 a month. So that means you can’t have any supposed alibis who may have drunkenly said to you that they’d give you helping hand if ever you needed it. Though this may strike fear into the hearts of many a young borrower this requirement is a positive as it goes some way to ensuring that whoever you decide on being you guarantor can provide an adequate safety net.
However, fear not guarantors. Though this may come across as a hefty burden all is not as it seems. First and foremost, it’s important to realise that your credit rating will not be jeopardised if you are suddenly hampered with the borrower’s loan repayments. This is because the role of a guarantor is simply to make the payments that the borrower cannot pay in full. Therefore, it is unlikely that a guarantor will have to repay a loan in full, as their responsibility will be to pay up to enough to complete the sum that the borrower cannot.
If you’re looking for a loan, and don’t have the credit score to match, a guarantor loan may be the ideal lending form for you.