Many borrowers think that guarantor loans and guaranteed loans are both interchangeable, but they are not. They both are different loans, although used to fund unforeseen expenses. You can borrow only a small sum of money that you are liable to pay back in full on the due date. The repayment term of these loans cannot be more than a month.
What are guarantor loans?
A guarantor loan is a small loan designed to help tide you over when you are broke. In particular, these loans are aimed at bad credit borrowers. Various lenders are out there who may be willing to loan you despite a poor credit rating, but there are chances when they are not sure about your repaying capacity.
No guarantor will approve your application if they doubt that you cannot pay off the debt. If your credit history is extremely bad because of a CCJ or any other reason, a lender might ask you to arrange a guarantor with a good credit score.
As these loans are small, there is no point in securing them. The lender will ask you to bring a guarantor to mitigate the risk. As a guarantor will enter into a loan agreement with you, it is called a guarantor loan.
The chances of acceptance are higher than, but it is worth noting that it may take a longer time to arrange a guarantor. Guarantor loans are riskier for guarantors as well. The onus of payment falls on the guarantor when you make a default. Moreover, they will lose their credit score as well. Knowing the risk involved in these loans, hardly anyone will be ready to act as a guarantor.
If you are to take out a guarantor loan, make sure the person acting as a guarantor knows the risk involved. Try to approach someone in your family, like your parents or spouse, to be a guarantor. Hardly an outsider will be willing to enter into a loan agreement with you.
Guarantor loans may be more affordable than loans from direct lenders with no guarantor.
What are guaranteed loans?
Guaranteed loans are different from guarantor loans. Despite a poor credit history, they do not require a guarantor even if you want to borrow money. Guaranteed loans imply that you will surely get money when you put in the application. These loans are advertised as 100% guaranteed loans.
The fact is no sort of 100% guaranteed loan exists. No lender can provide a 100% guarantee that you will get money when you submit the application form. The lending decision is made after the perusal of your credit report and income sources. A lender will thoroughly check the details like:
- Missed payments
- defaults
- Debt-to-income ratio
- Credit utilization ratio
- Total debt you owe
They use this information to assess the risk involved in acceding to your request. A lender can refuse you a loan if they find that your repaying capacity is very weak. So, it is not possible to give a 100% guarantee on the approval of a loan.
They use this information to assess the risk involved in acceding to your request. A lender can refuse you a loan if they find that your repaying capacity is very weak. So, it is not possible to give a 100% guarantee on the approval of a loan.
If so, why do lenders advertise small loans as guaranteed loans?
Guaranteed loans imply that the approval rate is very high. In other words, they are called high-acceptance loans in the UK. The approval rate could be up to 98%. These loans include all small loans particularly aimed at funding unexpected expenses.
- Payday loans
Payday loans are short-term loans provided to full-time employees responsible for paying off the debt in full on their next paydays. The approval rate of these loans is very high as no credit check is run. The lender usually makes a decision based on your income only. These loans can be very expensive, so be prudent while taking out these loans.
- Unemployed loans
Unemployed people can also come across emergencies and may not have enough savings to cover them. In the absence of an income source, it can be tough to get the nod for a loan. Some lenders provide guaranteed loans for the unemployed if you have a part-time income or a side gig. You can get approval based on unemployment benefits as well. The approval rate of these loans is also high.
- Doorstep loans
Doorstep loans also come with a higher approval rate. If you are retired, you can apply for these loans based on your pension. The representative of a lender will hand in and collect payments on your doorstep, so you do not have to have a functional bank account.
- Bad credit loans
Bad credit loans also come with a higher approval rate if they are small in size. You must have a fixed income source and a functional bank account to apply for these loans. Unlike payday loans, bad credit loans involve a credit check.
The bottom line
Guarantor loans and guaranteed loans are not the same loans. They are both different kinds of loans aimed at different types of borrowers. Guarantor loans are applied by those borrowers who are refused a loan due to very poor credit history and weak repaying capacity. A guarantor with a good credit score will sign the agreement and take on the responsibility to clear the dues when you make a default.
However, guaranteed loans do not require a guarantor. The prominent feature of these loans is that they are approved with a high acceptance rate. These loans include doorstep loans, bad credit loans, unemployed loans and payday loans. Guaranteed loans can be very expensive, so carefully assessing your financial situation is a must.
Loans are ideal to meet only unexpected expenses. You should try building an emergency corpus. This will help lower your reliance on loans. Make a budget and track your expenses to stick to your savings goals. Do not borrow money if you are not sure about your financial stability. If you cannot make up your mind, you should try to get help from a financial consultant.
Emily Rhodes operates as a Senior Content Writer at Easyadvanceloan for 5 years. She oversees the financial planning and monitoring of the cash flow. Emily also helps the firm forecast its financial standing by analysing the operational data and latest reports. It requires detailed research and predicting the trends before arriving at a conclusion. Emily Rhodes’s credible predictions and the best usage of problem-solving and analytical skills help the firm revise financial policies for growth. She ensures the best of her expertise by working in tandem with the CEO and Chief Operating Officer. Academically, Emily is a postgraduate with MBA in Finance from a reputed university.
