Since their arrival to the subprime market back in 2005, guarantor loans have gradually grown in popularity. At first, there was only 2 or 3 legitimate lenders offering this product however as time has gone on more providers have entered the market meaning there is now more choice for the consumer.
If you’ve decided that the guarantor loan product is the one for you then you next need to decide which lender to go with. One thing that you will notice is that the core product offered by the lenders is very similar; it’s just that there are various details of the product that may differ.
In order to gain the edge on their competitors, lenders will tweak their product in a hope to make it more attractive to consumers. Here are some things that lenders may tweak:
When guarantor loans first launched lenders would only offer between £1,000 and £3,000. However as time went on and the need for the product grew, lenders started to offer up to £5,000 and some even introduced a £500 small loan product. Nowadays though, the largest amount available is £10,000 which is repayable over a term of up to 72 months (6 years) however the average loan amount size remains at around £3,000 to £4,000.
APR and Interest Rates
One of the most effective ways of gaining the edge on competitors is by offering lower rates. Generally, 50% APR has been the industry standard for lenders entering the market however as time has gone on some lenders have dropped their rates to around 45% or lower. As we’ve seen from the personal loan market, a price war can pick up speed very quickly so don’t be surprised to see these rates drop even further in the future.
Historically, the guarantor loan process was pretty clunky. There was a lot of paperwork involved and it would take a number of days for the lender to offer a decision regarding the approval of the loan. Nowadays though, the majority of lenders offer a 100% online application process meaning there is no manual paperwork involved and the loan can subsequently be paid out the same day.
The checks involved in the guarantor loan process also differ. Some lenders will not carry out credit checks on the applicant, while others will. The majority of lenders will carry out some form of affordability check to ensure that the applicant can afford the repayments of the loan alongside all current credit commitments.
The Applicant and Guarantor Criteria
Each lender will have their own desired criteria which both the applicant and guarantor must meet in order to be approved for a loan. In general, the applicant criteria will be relatively flexible; they will be required to be over the age of 18 and in receipt of a regular income. The guarantor criteria will be stricter though; they will be required to have a good credit history, own their own home (although some lenders may now be able to accept tenants as guarantors) and be in receipt of a regular income that is sufficient to afford the repayments of the loan, alongside all current credit commitments.
There is no right or wrong in terms of which lender you should apply with; each will have their benefits and drawbacks. Deciding which is most suitable for you will be dependent upon your expectations and needs. If you’re looking to get the cheapest possible repayments then go for the lender with the lowest APR, if you’re more concerned about applying with an ethical lender then go for the one that offers the most personal service. Just ensure that when you do apply; you are applying with a direct lender and not a fee charging broker.