When it comes to finance, it is important to realise that not all of the options available to people are the same. This means that taking the time to look at your various options and determining which one is bets for your needs makes sense and will help you to be better off in the long run.
If you were to compare a payday loan with a guarantor loan, both strong options for people denied credit from traditional lenders, you will find that there are a number of major differences. The fact that a guarantor loan is dependent on someone vouching for you and being willing to pay the loan if you miss payments is good news for the lender. There is an added level of security and comfort for lending organisations when it comes to guarantor loans, which allows them to lower the rate of APR associated with the loan. While you should always look for terms and condition when finding a loan, as well as other issues, the amount of money that you eventually have to pay with respect to the loan is always going to be a big issue.
This is why guarantor loans are always going to be more attractive than payday loans because they are much more affordable. If you have a choice between these two options, opting for the guarantor loan is the smarter option by. However, you shouldn’t necessarily think that the guarantor loan option is fantastic and available without any consequences or potential issues. No matter what loan or finance option you take out, there are risks involved and you should be aware of these risks and know what is best for your needs.
Citizens Advice issue Guarantor Loan Warnings
While guarantor loans receive a much better press than payday loans, the rise of interest and demand for guarantor loans means that there is an increasing level of focus on these loans. So much so that Citizens Advice have issued a warning to borrowers about the fact that guarantor loans can be “just as damaging” as payday loans. In the worst case scenario, this is true, and it is something that borrowers should be aware of. The vast majority of people that take out a guarantor loan are able to pay it back on time and not have to face the consequences that many people associate with payday loans but it is still important to be aware of the potential problems involved.
Perhaps some people hear the word guarantor and don’t worry too much about this style of loan, thinking that there are measures in place to prevent the sums of money owed rolling up in the way that they do with some payday loans. It would be wrong to have this opinion. No matter what finance option a person has, there is a need for them to be fully aware of the potential consequences of things going wrong. It will hopefully never come to that but if you are taking out finance, you should always look to know every potential outcome and what may occur if the rules and regulations are not properly followed.
It is important to be aware of all Outcomes
Gillian Guy is the Chief Executive of Citizens Advice, who said; “Guarantor loans carry with them huge risks, and our evidence shows people are getting involved without being fully aware of the dangers.”
It is believed that over 50,000 people in the United Kingdom take out a guarantor loan, which can be paid back over a five year period. Research undertaken by Citizens Advice suggested that 43% of guarantors were unaware of the extent of their responsibilities, and this is the biggest worry for many people when it comes to this style of loan.
If a loved one or associate comes to you asking for help, and there is a good possibility that you don’t actually have to do anything, it can be call too easy to say yes when asked to be a guarantor. If the borrower pays on time and in full every month, there is no responsibility for the guarantor to do anything, and they can be thankful that they provided assistance to a friend without having to do anything. However, as soon as a payment is missed, things can become very real for a guarantor and this is why there is a need for guarantors to be fully aware of the potential outcomes and situations that arise from guarantor loans.
Most guarantors take the time and effort to familiarise themselves with everything that the process involves but for those that don’t, some issues may arise.
Andrew Reilly is a freelance writer with a focus on news stories and consumer interest articles. He has been writing professionally for 9 years but has been writing for as long as he can care to remember. When Andrew isn’t sat behind a laptop or researching a story, he will be found watching a gig or a game of football.