Are Guarantor Loans For You?
The Credit Crunch, the subsequent recession and the current gloomy economic forecast
- the ramifications will be wide and probably felt for a long time yet. However the effects have been felt in the credit market for the last two years. The tightening of mortgage criteria has been well publicised together with the virtual disappearance of 100% loan to value mortgages.
The economic conditions have also had a big impact on the unsecured credit market. The High Street lenders have all but stopped lending unsecured, personal loans and the previously flourishing sub-prime lenders have also either disappeared or significantly re-trenched, all this despite a seemingly unaffected level of demand from consumers. But as nature abhors a vacuum so a market abhors unsatisfied demand and
Guarantor Loans have grown to at least partially fill the gap.
Guarantor Loans work on the basis that the lenders ask the applicant to provide a Guarantor to back their application - if the borrower fails to repay the loan then the Guarantor will be required to make the payments. The logic for the lenders is that this spreads the risk and allows them to lend in a market that traditional products are shunning.
The set-up seems to work for the Lenders but are they good for the consumers? Firstly, and lets be clear about this, the best rates are still available from the High Street banks and these should be your first port of call. The problem is that most of the big banks will probably only lend to you if you either have a spotless credit history or are an existing customer, or both!
Guarantor Loans provide an alternative loan source for those people whose credit histories are not perfect. The fact that they have a Guarantor effectively sharing the risk does mean that the lenders may be willing to lend to those who have had problems with previous credit. That said, their rates will reflect the fact that the borrowers are higher risk and will be higher than the High Street Banks.
As with any loan a would be borrower needs to think carefully as to whether they really need the loan and, if so, whether a particular product is right for them, however, it does seem that Guarantor Loans are filling a gap increasingly left clear by the High Street banks.
Are Guarantor Loans For You?
By: Jon Miller
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