Since the economic crisis in 2008, banks have changed loan application requirements, making them stricter and stricter by the year. While this may not be a problem for people with excellent credit scores, it definitely creates a major challenge for those with poor credit score or no credit score at all. Young people who have just graduated and are at their first job are one of the most relevant examples from the latter category. When most students finish University, and get employed for the first time, they usually go through a rough financial patch: they want to get their own flat, buy a car to commute to work or start their own company, but they need a loan to fulfil these dreams. However, having no work experience, they are not eligible for bank loans. Guarantor loans, on the other hand, are very accessible, because they have flexible application criteria and do not require a credit score.
Why young people cannot get bank loans
Recent figures show that one in five UK graduates struggles with money after finishing University and works in a low to medium paid job. This does not allow them to make investments such as a flat or a car and sometimes it’s not even enough to cover daily necessities. Bank loans are not a solution in the case of young people, because banks have strict application criteria and because fresh graduates do not have a credit score, they are not eligible. But that doesn’t mean that there is no way out for them. Guarantor loans are an excellent option, because they allow young people to apply with the help of a second party who co-signs the agreement.
Finding a guarantor
First of all, the guarantor needs to have excellent credit score in order to co-sign, so you will need to ask help from someone who is not in debt and has a stable source of income. Secondly, it is absolutely essential for the guarantor to be a person you can trust and rely on. Becoming a guarantor is quite a commitment and you don’t want him/her to bail on you. To avoid unpleasant surprises, it’s best that you ask a family member such as a parent or older sibling. Friends and neighbours are also viable options, as long as you know that they are reliable and they agree with the terms and conditions of the loan.
How do guarantor loans work?
With guarantor loans, you can get anywhere between £1,000 to £7,500, amount which you can pay back in a period you establish, generally between 12 and 60 months. After you and the guarantor have filed the necessary documents, the loan can get approved in as little as 24 hours. If you make your payments every month, the guarantor will have no contact with the lender whatsoever apart from the annual statement and you will also get good credit. Payments are collected monthly from your bank account, like in the case of a regular loan, and you can even pay the loan early. If you are having trouble making these monthly payments, then the lender will get in touch with you and the guarantor to bring the loan up to date.
Mariia Lvovych is a banking & finance graduate, technical writer and business enthusiast who specialises in consultancy and corporate finance. Enjoying content writing as a hobby and a profession, she likes to explore the latest business & finance news and share ideas with the blogging community through guest posting on other related sites and blogs.