Guarantor Loans, PayDay Loans, and Bank Loan Options

by Darwin on November 6, 2014

People who have poor credit, or don’t have established credit, can find that short term financing needs often leave them in a tight spot. They aren’t able to access traditional loans; meaning good interest rates are out of the question. However, accessing a PayDay loan won’t build credit, though it might be a less costly alternative to a Guarantor loan.

The reason for this is that Guarantor loans are intended to help people build credit, by leveraging the good credit of a trusted third party. Often, these loans can also require the third party to obligate an existing asset, such as their home. This makes these loans unrealistic for many people, as those who would like to borrow don’t always have access to people with such resources. Other times they may have access to someone with the necessary assets and credit, but that person won’t be willing to risk their home for a few thousand pounds.

On the other hand, a PayDay loan can meet short term financing needs, but often comes at a higher term payback. The problem is that it won’t help to build credit. This means that a borrower, while perhaps having met a short term need, will still be unable to access better loan interest rates – even though they paid back their PayDay loan as agreed. Because of this, some people end up in a debt spiral, where they find themselves unable to get loans with acceptable interest payments, but still need short term financing to meet immediate needs – constantly struggling to make interest payments, when all they need is a little bit just to get ahead of the curve.

These things these people borrow for are usually items like cars, or perhaps to cover the expenses of an immediate medical need. Whatever they are, too often, these people don’t have the finances to meet the need. When this happens, they are left with just two realistic finance options –either a Guarantor loan, or a PayDay loan. If you find yourself in this position, use the following three tips to help choose the loan best suited to your purposes, and get the best rates.

1) Contact Guarantor Loan Companies: You can view a list of Guarantor Lenders here, and even if you don’t qualify for their terms, some are willing to work with borrowers who are on the edge. Presenting yourself as a candidate for a loan, and finding a way to guarantee your ability to repay to their satisfaction, may cause them to bend their standards a little. This is because some of these lenders will not require loan collateral from someone with exceptional credit – particularly for small amounts. If you can prove to them that you’re creditworthy enough to borrow, even at their maximum rates, then you might be able to get them to approve you. For example, a £500 to £1,000 loan from a Guarantor company will always be less than the same repayment to a PayDay lender.

2) Discuss Options with PayDay Lenders: If you aren’t able to convince a Guarantor lender that you’re trustworthy enough to repay even a small loan, see what kind of other options a PayDay lender may be willing to extend you. Often they have preferred rates, or discounts for those who often use their services. While you won’t get a fantastic rate, you may be able to get something small enough that you’ll be able to make the payments as agreed and get the financing you need. Once you’ve done this and have the settled loan paperwork in hand, sometimes this past performance can help you to convince a Guarantor lender of your ability to repay.

3) Bank with Small Banks: High Street is at best difficult to get financing from. However, if you manage your finances reasonably well, and use a smaller bank, you can often get a branch manager to approve small short term financing. As we mentioned in Step Two above, having your loan papers handy from previous PayDay loans – especially those that were drafted from your current account, will help you here. You can show the branch manager that you have repaid your debts, and that the only reason you’ve been using PayDay lenders is because you were unable to obtain traditional financing. In such cases you may be able to get a £500 or £1,000 loan from your local bank. The interest rates will likely be quite high, up to the maximum of 27.9%, but that loan will be enough to get your finances out of the rut they’re in, and qualify you for better financing options once you’ve paid it off.

Remember that smaller lenders have a lot more leeway in their decision making process. Obviously they can’t and won’t extend credit to someone with a horrid financial history, but you can work around that. Putting £500 in the bank as a guarantee, and letting the bank hold it as collateral will sometimes be enough to get a small bank to loan you the £500 you want. It’s not something that happens often, and the banksters of High Street won’t even consider it, but smaller banks will. This is especially true of those who are interested in the money they can make in interest from your loan, or their collection of your account, should you go into default.

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