Bank Declined? Guarantor Loans Might Be The Answer
It goes without saying that the last two years have been a torrid time for the economy
and the financial services sector has probably seen the biggest changes of all. Following the collapse of some well respected and renowned institutions, and the rescue of others by Government intervention, the Banks and Building Societies have come under increasing pressure from Government, Shareholders, the media and the public to ensure that their credit portfolio and risk appetite are in line with expectations.
The rights and wrongs of previous decisions are beyond the scope of this article, however, it is clear that in the post credit-crunch era the Banks have battened down the hatches and become much more risk averse than in previous years. The effects on the Mortgage market, and subsequent repercussions on the housing market, have been well publicised with the prospect of readily available 100% loan to value mortgages looking a long way off.
However, less well-publicised is the effect on the unsecured loan market and in particular the 'sub-prime' sector. High St. Banks were usually the place to access the cheapest loans for the average consumer, and this remains the case. However, post-recession these rates are now the preserve of those with spotless records, pushing more would-be borrowers into the sub-prime market.
At the same time the lenders in the sub-prime market also had to respond to the lack of credit and either exited the market or increased their rates to reflect the higher risk. The net effect? More people who could not access the High St products yet fewer sub-prime lenders offering products at a higher rate.
However, for those people left outside the High St criteria, yet unwilling to pay the rates on offer, there may be a solution. The Guarantor Loans products have ingeniously started to fill the gap by asking for applicants to provide a Guarantor for their application. The Guarantor usually needs to be a homeowner with good credit history and will be asked to step in and make the repayments if the borrower defaults. By effectively spreading the risk the lender can therefore offer rates that sit between the High St and the more expensive sub-prime loans.
So although consumers with less than perfect credit histories may well have to pay more for their credit, they may be able to avoid the highest prices by finding a Guarantor to back their application.
by: Jon Miller
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