Comparing Guarantor Loans to Secured Loans

Since the recession hit in 2008, the alternative loan market has exploded. This is because many banks and high-street lenders have tightened their criteria, meaning that they have been refusing to give money to people who had a less-than-perfect credit history. This obviously left out a lot of potential customers, as a perfect credit history has become increasingly uncommon since the credit crunch. If you’re new to the loan market, then you may find the huge variety of options a bit confusing. Guarantor loans, logbook loans, bank loans, unsecured and secured…what does it all mean?

Comparing the different types of loans with each other is a great way to work out which are the best options for you. There will be many different costs involved depending on the type of loan, and the application criteria can be very different from product to product. In this article, we’ll endeavour to compare guarantor loans to the different aspects of secured lending for those with a less-than-perfect credit history.

What’s the Difference?

Guarantor loans are a type of unsecured lending, meaning that the loan amount is not backed up by an item of property (a house, car or other valuable item) owned by the applicant. Instead, the lender asks that a guarantor signs up along with the person who wants to borrow the money. By doing this, they’d be agreeing to cover the loan payments, should any problems arise during the loan term.

A secured loan, on the other hand, doesn’t involve another person at all. The loan is secured against the value of an item, meaning that, should anything happen which means the borrower is unable to pay their loan instalments, the item in question could be seized by the loan company. A mortgage is a type of secured loan, as if the homeowner is unable to pay the instalments, the house could be repossessed by the bank.

Guarantor Loans

Comparing the Cost

As secured loans and unsecured guarantor loans are very different, there’s usually a big difference in how much it costs to borrow money from each. Guarantor loans usually have an APR (annual Percentage Rate) of around 50%.  This number shows how much, as a percentage of the loan amount you take out, will be added to the loan in interest and other fees.

Secured loans often cover pawnbrokers, logbook lenders and other similar loan products. As these are geared towards those with a poor credit history, yet without the guarantor to back them up, the cost of a loan like this can be much steeper. A typical logbook loan (secured against your vehicle) can be around 450% APR, whereas an online collateral loan (which acts the same as pawn broking) can command anything upwards of 80% APR.[Continue Reading…]

Two Types of Loans

We already know that in this world you need money to survive. You need money to do just about anything actually. The economy is down and you’ll see a lot of  people trying to get loans just to help them take care of their basic needs. Everyone has bills they need to pay, so we are here to help you find a way to do that by getting a loan. You need to understand the different types of loans so you make no mistake in taking one that you can not afford to pay back. You need to be careful in choosing.

There are two types of loans, secured and unsecured loans. Secured loans ask you to provide collateral to a loan company; if you don’t pay them back they keep the items you offered up for collateral. This could be your car, house, personal items and much more. This is not suggested for those who have no intentions or don’t have the ability to pay the loan back accordingly. You can lose everything you ever worked for in your life with this loan if you choose to not go about it in the right way.

Then on the other hand there are unsecured loans which you can only get if you have nothing to offer as a guarantee that you will pay them back. You will have to pay a much higher interest rate than a secured loan because the lender is taking a risk relying on your word, credit history and making a judgment on whether or not you can pay back the loan. These loans if left unpaid cause your credit score to drop dramatically and you’ll receive phone calls from collection agencies. You want to pay these back yourself or go through a debt consolidation firm to help cover the costs of these.

A warning to you would be, never take out a loan that you know you can not pay back. Don’t overdo the amount you take out because you want to pay everything off all at once, because you will have to pay that loan back just like you took it out. Your amounts will be higher and your interest rates will soar through the roof. You might want to look into taking out a few small loans. That way you can pay them each off with small payments and don’t have to risk having your assets liquidated or bankruptcy.

If you happen to file for bankruptcy you will have to wait a minimum of 5 years until you can even have credit again. This is a long time to wait, and looking at the economy credit is really needed right now. Find the loan that’s right for you, make a payment plan, and stick to it. You can fight your way out of debt easier this way. Good luck!