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Amigo Guarantor Loans - The Pros and Cons

Posted March 28, 2013 by matthewreilly to Financial Advice 1 0
This post was written by a EasyFinance.com Community member. The views expressed below may not reflect the views of EasyFinance.com.

While some people may be wary of guarantor lending, due to not being familiar with guarantor loans, there can be several benefits to having a guarantor loan and these benefits are worth investigating in a number of different situations.

If you're thinking of taking a guarantor loan, it's likely that you have been declined by your bank. For most people that can't get a loan from their bank, guarantor loans are a much cheaper option that payday loans, that are often the other alternative. Bad credit payday loans can have APRs as high as 4,000%, with some guarantor lenders, such as Amigo Loans, offering APRs at around 100th of these payday lenders.

Before jumping into a guarantor loan, it's important to consider the pros and cons, making sure that you understand what's involved.

Pros for the borrower

  • If you can't get a bank loan, guarantor loans are one of the cheaper options available and are substantially lower cost than payday loans.
  • Guarantor loans aren't secured against property or other possessions. Instead, a guarantor agrees to repay the money if the borrower doesn't.
  • You don't need to have a good credit rating, whether you can afford the repayments is the most important factor.
  • Many guarantor loans don't charge fees for things like paying your loan off early, whereas most banks do charge extra fees for this.

Cons for the borrower

  • If you can't find someone that trusts you to repay the loan, you won't be able to have a guarantor loan.
  • If you miss a payment, your guarantor will be expected to make the payment for you so you should take care to ensure payments are comfortably affordable.
  • Interest rates are usually higher than bank loans, so can seem high, but are quite often the cheapest loan available. Always check for cheaper options before applying.

Pros to the guarantor

  • Instead of lending to the borrower and collecting monthly repayments yourself, being a guarantor means that the repayments are collected by the lender, with you only being contacted if payments are missed.
  • You can help a family member even if you don't have immediate access to the money to lend yourself, as long as you can afford the monthly payments, many people can afford the repayments, but don't have enough in savings to lend to their friend/family directly.
  • Helping your friends and family can be a very rewarding experience.

Cons for the guarantor

  • If the borrower misses a payment, you will be expected to pay
  • Although missed payments won't usually be recorded on your credit file, if you the borrower doesn't pay and you can't, it's possible for the lender to apply for a CCJ against you as well as the borrower.
  • Once you have agreed to be a guarantor, to get out of the agreement, the loan would need to be paid off in full. It's important to make sure that you only agree to be guarantor for someone that you know and trust to keep up with repayments

In summary, when looking for a guarantor loan, it's vital to make sure that you have done your homework. First, make sure you look for the best option for you, this will usually be the option with the lowest APR, but it's important to keep an eye out for hidden charges that the lender has for making an application, paying off your loan early and missed or late payments. You will find them some guarantor lenders charge a lot more than others for these fees. Amigo Loans, the UK's longest running guarantor lender claims to not charge any fees, other than the APR on the loan. Always read the small print and make sure that the loan that looks the cheapest is really the cheapest.

About matthewreilly: Matthew Reilly is a Financial Adviser for more than 7 years, helping families and individuals to achieve their financial goals. He works with network of highly skilled professionals and companies and strongly recommends Amigo Loans which offers guarantor Loans. He loves reading about business and entrepreneurship.

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