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With there being so many short-term finance options out there, you might understandably be a little overwhelmed or confused when you are trying to seek out and compare them.
One such loan option that you may have heard of, is the “no-guarantor” loan. But what exactly is this type of loan, and might it be a sensible choice for your own circumstances and needs?
Introducing the concept of the guarantor
A lot of the time, when someone turns to a lender requesting a short-term loan, they will be asked whether they can strengthen their application by adding a guarantor to it.
A “guarantor” is a third-party individual – typically a family member or friend of the loan applicant – who agrees to be responsible for the repayment of the debt, in the event that the borrower is unable to keep up with the repayments themselves.
Lenders tend to put in place certain eligibility requirements for guarantors. These requirements tend to differ from one lender to the next; however, the prospective guarantor is typically expected to be at least 18 years of age (or 21 in the case of some lenders). And for obvious reasons, it is also often expected by the lender that the would-be guarantor will have a good credit history and their own regular income.
If you do have a guarantor on your loan application, this could help reassure the prospective lender that you are not such a great risk as someone to lend to (and this worry could be particularly high for them if you have a bad credit history). As a consequence, you might be able to get a short-term loan on more attractive terms than would have been the case in the absence of a guarantor (and, of course, it could strengthen your chances of getting a loan in the first place).
But not everyone wants, or is able, to add a guarantor to their loan application
Now, if you’re reading this article because you performed a Google search for something along the lines of “can I apply for a loan without a guarantor?”, the good news is that yes, you can.
Indeed, some brokers and lenders make non-guarantor loans a key part of their offerings. Non-guarantor loans are unsecured loans where the borrower is not required to provide a guarantor (also known as a co-signer) in order to be granted the loan.
These companies realise that there are certain circumstances in which a prospective borrower might not wish to include a guarantor with their application or may not be able to do so. For you, there may not be anyone in your life at the moment who would make an obviously trustworthy guarantor. Or you may not want to run the risk of putting your relationship with a certain person under strain, in the event that they are a guarantor and you struggle to keep up with your loan repayments.
Or, of course, you might not want other people in your life to know about your finances, in the way they would need to know about them, in order to serve as a guarantor. This is a perfectly understandable preference.
So… Is a non-guarantor loan a very good idea?
As is normally the case with questions like this, so much will depend on your particular circumstances and needs.
Above, we touched on the possibility that you may have to apply for a loan without a guarantor, if you are to apply for a loan at all, for the simple reason that there may not be many (or any) obvious candidates to act as a guarantor for you.
However, if this is the case for you, there might still be alternative ways to gain access to money – for example, borrowing funds from friends or family, or even extending your bank overdraft.
It is also important to understand that a loan application without a guarantor attached is likely to be perceived as a higher risk to a potential lender. So, you might have to agree to pay a somewhat higher interest rate in order to gain approval for the loan.
But on the other hand, if you have certain emergency expenses to deal with, and you don’t have the time to find a guarantor, it could still be perfectly possible for you to apply for a loan without a guarantor, and get a positive (and quick) result.
As always, we would urge you to carefully consider your circumstances and likely ability to repay what you owe – including any interest – before committing to any specific financial product.
Don’t forget that it could take you just a few minutes to fill in and submit our own no-obligation application form here at CashCompare. This will give you a quick indication of how much you might be able to borrow, and on what terms – which in turn, could inform your decision-making.
"The information provided in this article is for informational purposes only and does not constitute financial advice. Always consult with a financial advisor before making any borrowing decisions."
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk. We are a credit broker and not a direct lender.