Borrowing money isn’t the easiest process in the world. It’s challenging for people with a good credit history but even more difficult for people with lower credit scores. Guarantor loans are one way for people with poor credit scores to borrow money. But again, they’re not easy to get. Let’s look at some alternatives to guarantor loans in the UK.
Why are guarantor loans inaccessible?
A guarantor works much like a personal loan, but the key difference is that it is guaranteed by someone else. If you aren’t able to meet the repayments on the loan, your guarantor will need to step in. However, if you can’t find a guarantor that a lender approves of, you will need to find an alternative, as we explore below.
One of the easiest ways to borrow money is to apply for a personal loan from a lender like Koyo Loans. You agree to borrow a lump sum of money before paying it back over a specified period of time, with interest. It’s a relatively inexpensive form of credit and is typically unsecured. This means you don’t risk your assets if you default on your loan repayments. However, most lenders only offer unsecured personal loans to people with good credit scores, so it won’t be a good option for everyone. If your credit score could be better, look for a lender like Koyo that utilises Open Banking, as they consider more than just your credit score when considering your application.
As non-profit community organisations, credit unions are run for the benefit of members, by their members. Members of credit unions are linked by a shared bond, be it the same church, employer, or trade union. If you’re a member of a trade union, you can usually access low-interest credit after building up a savings account, which is another relatively low-cost way of borrowing money.
Depending on the terms of your bank account, you might be able to organise an authorised overdraft. You need to be aware of the two types of overdrafts – authorised and unarranged. If you go into an unarranged overdraft, you will be charged extremely high-interest rates as a result. If you’re in an unarranged overdraft, research shows that you may be charged effective interest rates of more than 80%. So, make sure you authorise an overdraft with your bank in advance if you go down this route.
Friends and family
If you’re in a fortunate position to borrow money from a family member or friend, it can be a good way to access credit. But you need to think about the potential strain that a loan could have on your relationship before asking someone for help. After all, you don’t want to fall out with someone close to you over money.
If you’re hoping to borrow a large sum of money, you might have success with a homeowner loan. These loans are secured against the value of your property, and lenders are often more willing to offer you credit. Of course, the catch is that if you fail to pay the money back, your home is at risk.
A logbook loan is a secured loan that you borrow against the value of a vehicle. It’s often a type of loan used by borrowers with bad credit, but you put your vehicle at risk by applying. You should also be aware that logbook loans are super expensive (often higher than 400%), so make sure you weigh up the pros and cons before applying.
‘Bad credit’ card
There are a number of credit cards out there that have been specifically designed for people with bad credit. When you use them correctly, they can be a helpful way of improving your credit score, which boosts your chances of getting credit again in the future. If you opt for a high-interest credit card, make sure you can afford the repayments first.
People with serious money issues or a poor credit history sometimes turn to payday loans. These are typically short term loans that are repayable within a few weeks or months and come with super high-interest rates. The FCA states that payday loans have interest rates of at least 100%, but they’re usually much higher. Always check for a representative figure before taking out a payday loan, so you know how much interest you will payback.
For people with low income, budgeting loans can spread the cost of an essential payment out over a longer period of time. You need to be in receipt of state benefits to apply for a budgeting loan, but they’re interest-free, and your repayments are usually taken out of your benefits in future months.
Salary advance schemes
The easiest way to participate in a salary advance scheme is to ask your employer to pay you early. You just need to be mindful that every employer has different ways of dealing with such requests. Third parties can offer your salary in advance, but usually at a high fee. Many of these schemes aren’t regulated in the same way as other forms of credit and are therefore riskier.
As you can see, there are lots of alternatives to guarantor loans. To make sure you apply for the right option for your personal circumstances, make sure you research the pros and cons of each, so you don’t leave yourself in a difficult position when borrowing money.