Since the start of the economic crisis, millions of people have been left out in the cold by their bank. If you need a loan and have no credit history, or a bad credit score, you may feel like your only option is to apply for a payday loan, which can mean an APR as high as 4,000 per cent.
Luckily, it isn't just a choice between paying 4,000% APR and not borrowing at all. There are options out there with less jaw-dropping interest rates that are willing to lend to people that the banks won't. Until recently, one of these options, Guarantor Loans, was relatively unknown, but in recent times they've started to become seen as an increasingly viable alternative to the under-fire payday industry, partly due to the work of guarantor lender, Amigo Loans.
James Benamor, CEO of Amigo Loans, the UK's longest running guarantor loans company explains why he thinks this is the case, saying “Many payday borrowers are left in a downward spiral of debt, unable to repay the loan at the end of the month, being forced to roll it over, or re-borrow from another payday lender. It's clear that, until now, many payday customers are unaware of the available alternatives, like guarantor loans”
Benamor's Amigo Loans is shaking up the industry by returning to a more traditional, trust based form of lending, where affordability is the main focus and borrowers are asked to provide a guarantor to back their application. “When it’s a social relationship people are much less likely to walk away from a debt than if it was to a bank” says Benamor
“A guarantor loan is what Banks used to call 'a loan', until the invention of computerised credit scoring. Back then your local bank manager would know you and lend to you based on your assets or your income. If he didn't feel comfortable lending to you, he'd ask for your Mum, Dad, brother or sister to guarantee the loan. Amigo loans are just the same old concept brought online and up to date.” he explains.
It's clear that despite the guarantor concept not being a new idea (guarantors are common place in the mortgage and student letting worlds), many people are still unaware that these loans exist, or are unsure whether guarantor loans could be suitable for them.
What exactly is a Guarantor Loan?
Guarantor loans require a second person, usually a family member, to sign an agreement which states that they are prepared to make any repayment that the borrower doesn't. Guarantor loans are designed for people who can't get a loan from their bank, due to either having no credit history, or a bad credit score. Instead of focusing on your credit score, guarantor lenders focus on two main points; whether you can afford to make the repayments each month and whether you have someone who knows you and trusts you to keep up to date with your repayments and manage the loan responsibly, who agrees to guarantee your repayments.
Who can be a guarantor?
Each guarantor loans company has its own criteria, but in general, guarantors need to have a good income, be able to afford the repayments, not have recently experienced problems with making their own repayments and will often need to be a home-owner, although the loan isn't secured against their property.
Is a guarantor loan right for me?
Guarantor loans are available to anyone that can afford the repayments and find someone that's happy to be their guarantor, as long they aren't bankrupt, or in an IVA (Individual Voluntary Arrangement). If you're able to borrow at a lower rate, it would usually be best to do so, but if you are thinking of applying for a payday loan, guarantor loans are a far cheaper alternative. The flexibility of guarantor loans with some guarantor lenders, like Amigo Loans, means that you can pay your loan off early, without a charge, making it possible to use it in the same way as a payday loan, at around 100th of the APR.