No guarantor loans are personal loans that you can use to cover small unexpected expenses, such as medical bills, and planned expenses, such as weddings and home renovations. Good credit borrowers do not require a guarantor, but subprime borrowers will need one with a good credit rating. This improves your chances of getting qualified for a loan.
Arranging a guarantor with an impressive credit history reduces the risk that a lender bears, as they can call on the guarantor to discharge the debt in case you default. Unfortunately, many people feel reluctant to enter into a contract as a guarantor because they will be legally liable to settle the debt that they never took on. Further, they will lose their credit score too. The impact of a poor credit rating is far-reaching. They will continue to struggle with borrowing money at lower interest rates down the line.
Given that arranging a guarantor is not a cinch, many lenders approve loans for bad credit with no guarantor. The loan amount can be small or big, depending on how poor your credit rating is and how high your income is.
Things that you must know about loans for bad credit with no guarantor
There are a few lenders who provide bad credit loans without a guarantor, but you should never forget that these loans are way more expensive than guarantor loans.
A high APR
No guarantor loans charge very high interest rates. APR for larger loans will be lower than for small emergency loans, but they are still high in relation to what is offered to good credit borrowers. Small emergency loans do not offer more than £1,000, and the APR for these loans is exorbitant. Sometimes, it could be up to 1500%.
Bear in mind that small personal loans, which are aimed at funding small emergencies, are no different from payday loans. Since these loans have gained a bad reputation, lenders now sell them in the name of quick loans, fast loans and small emergency loans. Therefore, APRs for these loans are quite high.
A small amount is discharged in one shot
Even though they are not advertised as payday loans, it does not mean that you can spread the cost of the debt. Loans worth less than £1,000 are required to be discharged in a lump sum. The repayment term of these loans is not more than a month. You will be required to settle the debt on your next payday once and for all. You might find it difficult to keep up with the payment.
Most of the time, you will be left with insufficient money to cover your day-to-day expenses due to the settlement of these debts. As a result, you will end up borrowing more money to meet essential expenses. Eventually, you will find yourself falling into an abyss of debt.
If the loan amount is large enough to spread the cost, you will pay down the debt in fixed instalments. Though payments are manageable, you should still ensure that you will not struggle with payments.
Affordability over credit score
There is no doubt that lenders will check your credit score to determine your repayment capacity. Your credit score should be stellar if you want to avail yourself of lower interest rates. Since your credit score is already abysmal, you might not be able to qualify for affordable rates. Further, the loan amount is also restricted.
At the time of approving a bad credit loan, lenders will carefully check your overall repayment capacity. Your credit score is just one factor. They will check how much debt you currently owe. Your budget must have some wiggle room to easily pay off the additional debt without struggling with other essential expenses, including current debt payments.
If your lender suspects that you will not be able to discharge the debt, they will most likely turn down your application or lend you less than what you have asked for. Make sure that your credit score is not in the category of “very poor” range and that you do not owe too much debt currently, which calls your repayment potential into question.
No credit check is not an option
There are some lenders who claim to provide bad credit loans with no guarantor without any credit checks at all. Borrowers often fall prey to such offers in order to protect their credit score from plummeting. The fact is that no legitimate lender is authorised to approve a loan without credit checks.
Even if you are applying for subprime loans, they will check your credit score. This will help you know about your past payment behaviour. If any lender offers you money without any credit checks, they will charge exorbitant interest rates. Chances are, you fall behind on the payment. These lenders could be loan sharks to trap you into an ongoing cycle of debt.
Some lenders run only soft checks. They do not affect your credit score, but they are applicable as long as the loan amount is up to £500. Loans above £500 will require hard credit checks.
Credit score building depends on the payment plan
If you take out a small loan which you are required to discharge in one fell swoop, you cannot see any improvement in your credit score despite on-time payments. However, if you fail to discharge your debt, you will certainly lose your credit score.
If you take out loans for bad credit with no guarantor that are to be paid down in monthly instalments, you will certainly be able to improve your credit score by making on-time payments. Falling behind on payments results in a drop in credit score.
The bottom line
Bad credit loans with no guarantor are accessible, but they come with high interest rates. Most of the lenders will lend you a small sum of money that is repaid in a lump sum. Use these loans only when the nature of the expense is urgent, and you are confident that you will not fall behind on payments.
