What is a non-guarantor loan?
A non-guarantor loan is essentially any loan that doesn’t require you to have a guarantor. For example, this can include:
A guarantor is someone who formally agrees to take full responsibility for paying the loan if the borrower stops paying. They're usually aimed at people with bad credit, who appear too risky to lend to without a co-signer on the credit agreement.
Generally speaking, a loan that is specifically labelled as ‘non-guarantor’ will also be aimed at those with bad credit. The difference is the named borrower on the credit agreement is solely liable for paying back the loan. This makes it riskier than a guarantor loan from the lender’s point of view. So, higher interest rates may apply as a result.
How difficult is it to get a loan without a guarantor?
Getting approved for a loan with no guarantor can be tricky if you have bad credit, but it is possible. The kinds of deals you’re eligible for depends on your individual circumstances and the lender’s eligibility criteria. This varies from one company to the next, so you may be declined by one and accepted by another.
Some lenders specialise in providing finance for those with bad credit, so you may find it easier to get approved for a non-guarantor loan through one of these lenders – but there’s no guarantee.
The best thing to do is to use an eligibility checker to see if you’re eligible before you apply. This can help you avoid making too many applications at once and reduce the chance of rejection – thereby protecting your credit score.
Eligibility checkers don’t leave a footprint on your credit report, so you can use them as many times as you need.
Pros and cons of non-guarantor loans
You should consider the pros and cons of loans with no guarantor carefully before making any applications. This will help you to make the best financial decision to suit your circumstances.
- you don’t need to ask someone to be your guarantor – so you’re not putting anybody you care about at financial risk
- you could access the loan quicker – whereas adding a guarantor involves extra checks that may lengthen the application process
- they can be more practical in an emergency – because you can usually access the money quicker
- they can have high interest rates – which increases the cost of borrowing
- you may have limited options – which could lead to you taking a deal that’s worse than if you had a guarantor
- you might not be eligible for one – if your credit score is very low you might not get accepted for a non-guarantor loan
It may also be worth speaking to a financial adviser if you need more information.
What else do I need to consider before I get a loan?
There are other factors that you should think about before getting any type of loan, such as:
Is it necessary to take out a loan?
Consider whether the loan is something you really need – is it for an essential purchase, like repairs for your home or car? Or is it for something non-essential that you could do without?
If you do need the money, is there another way you can access funds? Perhaps you have savings or you’re able to get a loan from family or friends. But remember, if you don’t pay the loan back you could risk damaging your relationship with them.
How much do you need to borrow?
Think about exactly how much money you need for the purchase and look at rates based on that amount. If you start looking at loans without knowing how much you need to borrow, you could end up paying more interest overall and over a longer timeframe.
How much can you afford to repay?
It’s not just about how much you need - you should also consider how much you can afford to repay. If you’re unable to make your repayments on time and in full, you could face late fines, which could add to your debt. Any missed payments would show on your credit report, which could affect your ability to get credit in the future.
What type of loan do you need?
Do you need a secured or unsecured loan? If you’re looking to borrow a smaller amount it’s probably best to go with an unsecured loan so that you don’t need to use your home as collateral. Just be aware that the interest rate may be higher compared to a secured loan.
What happens if you can’t pay it off?
Not meeting your repayment plan for your loan can cause serious issues. The lender can issue late fines, causing you to owe them a larger sum that may take longer to pay off. They can also chase you for the money owed, which might be unpleasant and stressful for you.
Missed payments will show on your credit report, which can ring alarm bells with lenders. Three to six missed payments could lead to a default which can seriously affect your ability to get credit in the future. As a last resort they can even take legal action against you.
If you’re struggling to repay a loan, contact a charity like StepChange confidential debt advice.
How to get a loan with bad credit and no guarantor
If you’re finding it difficult to get a loan with bad credit and no guarantor, you need to consider if it’s the right choice for you at the moment. To improve your chances of approval in the future and boost your eligibility, try these four steps:
1. Improve your credit score
The higher your credit score, the more deals and better interest rates you’ll have access to. You can improve your credit score by:
- paying any debt and bills on time, every time
- registering on the electoral roll and the Rental Exchange initiative
- getting a credit building credit card and meeting your repayment plan
- putting household bills in your name and paying them correctly
2. Reduce your debt-to-income ratio
Your 'debt-to-income ratio' is a comparison between your monthly income and debt repayments, expressed as a percentage. For example, if your income is £1,500 per month and your debt repayments are £500 in total each month, your debt-to-income ratio is 33%.
Loan providers use this to check your affordability and your ability to take on more credit. The lower your debt-to-income ratio, the more likely it is you’ll be accepted for a loan. You can reduce your debt-to-income ratio by paying of your debt as quicky as you can afford to and not taking out any more credit.
3. Reduce your non-essential outgoings
Lenders also look at your regular outgoings versus your income to see if you have enough spare cash to afford the repayments. This is called an affordability assessment and can make or break your application.
Reducing non-essential outgoings can increase the amount of money you have available for loan repayments. Things you may be able to cut down on include:
- meals out
- memberships to things you don’t use much
- old subscriptions
4. Check your credit report for errors
Checking your credit report for errors and fixing them is a great way to increase your credit score because it’s relatively simple and easy. You can check your credit score online for free without leaving a footprint on your credit history.