Prior to applying for a guarantor loan, it is important to know what happens if your application is not successful. Plus, we give you some of the options available so you can still have access to the finance you need. To give you an overview:
- There are no fees charged
- Your information will not be pushed out to 3rd party marketers
- You may be offered an alternative product
- You may be able to find another guarantor or lender to help you
Firstly, you will be pleased to know that you will not be charged any fees if your application is not approved. This is a nightmare for anyone looking for finance and funding – because the last thing they want is to be without a loan and also charged for simply applying.
Over the last few years, there have been brokers in the short term lending space who have encouraged customers to enter their details with the hope of finding of loan. In several cases where a loan was not granted, a fee was still taken from their account. Fortunately, this approach has virtually disappeared since the Financial Conduct Authority began regulating the industry in 2015. Now all brokers and lenders (including our site and the lenders we feature) must have permission and authorisation from the FCA to practice consumer credit.
Alternatives May Be Suggested
Although we do not offer any alternatives to guarantor loans, there are lenders that we work with that might. There are some companies we feature that have sister companies and may be able to offer you a loan in another space such as secured lending or something without a guarantor.
If you have a poor credit history and have experienced things like county court judgements or bankruptcy in the past, the lender may recommend you to a debt relief charity such as StepChange who can help you consolidate your debts to pay off any outstanding finance and eventually become free of debt.
If you are recommended to another company, it will probably only be one firm that is closely affiliated with the lender and you will certainly not be approached by thousands of companies or bombarded with phone calls, emails and text messages as a result.
We only offer a comparison service that allows you to click through to the lender. We do not take any of your details so will never charge you any fees or pass you onto third party companies, because we simply do you have your information to do so.
There is the possibility that a credit search footprint may have been placed on your credit file during the application process. This occurs when a lender has paid to check your credit record and will show proof of their visit with a ‘search footprint.’
This is nothing to be alarmed about because credit reference agencies claim that it is normal to have around 12 credit searches per year and they typically disappear after 12 months anyway. They only become an issue when you have several searches in a short space of time, because this can make you look desperate for finance and cause lenders to be more cautious with your application. If you get to a point when you have lots and lots of credit search footprints, this may in fact damage your credit score.
What Are My Options Now?
You Can Find Another Guarantor or Lender
A good guarantor can be crucial to getting your application approved. Ideally someone with a good employment status, credit rating and owns a property can give you a huge boost in confidence for the lender. They tend to follow the principle of ‘if a person with a good criteria is willing to trust you, then we can too.’
Fortunately, lenders will give you up to 45 days to find another guarantor to add to your application. So you have time to find a family member or close friend to be your guarantor and it is best to find that person with a good credit score. If you do not find someone within the 45 day period, no problem, you can still proceed with the application but will just need to enter your details again from the start.
A very standard thing is that your guarantor is not old enough as most lenders require a guarantor to be over 25 years of age (rather than the 18 years to simply apply). This is because there is an increased responsibility with being a guarantor and is something that is reflected with an older age to show more maturity and financial history.
If the one lender does not approve your application, you can in theory apply with another lender. We feature around 6 to 10 lenders on our website at any point and each has a different criteria, so you are welcome to apply with another who may be willing to accept your application. However, as mentioned above, it is not recommended to make several applications within a short space of time as this will generate a number of credit footprints and damage your changes of being accepted for finance in the future.
Secured loans are an option to access finance if you may have been turned down due to a poor credit history. This involves putting down something as collateral or security in order to strengthen your chances of being approved. The most common forms of secured loans are mortgages and car loans because if you cannot meet repayments, the lender or bank will repossess your house in order to recover their costs.
Secured finance allows you to release the equity from your home, vehicle or other valuable item. The amount you can borrow potentially runs in the millions and common things used include vehicles, property, art, jewellery, land, businesses and invoices.
A credit union is a non-profit organisation that allows you to borrow hundreds or thousands of pounds at very low rates. It was set up to help those in the community and is commonly formed by charities and churches. The lenders are not quite as savvy as the ones we see online, so it can take a week to be approved and then another week to receive your funds.
However, the rates are extremely low at around 26% APR so borrowing £1,000 would cost £1,063 over 6 months, compared to a guarantor loan that would cost £1,618.
The loans are not secured, so you do not need a guarantor or to put down any collateral and there are no default fees for late repayment. The only thing you need to do is be eligible. But, this finance may only be accessible if you live in the local vicinity of a credit union or work in the public section such as nurse, teacher or policeman.
Credit Builder Credit Cards
This is a specific credit card to help those with bad credit and give them the opportunity to make regular repayments and improve their credit scores. Perhaps your application for a guarantor loan has been denied because of your credit history. This card option gives you access to a credit limit based on your affordability and the chance to boost your credit score and get access to mainstream finance again.
The rates for such credit cards are around 30% which is a lot more than the standard 18% charged for a basic credit card. Nonetheless, it offers a chance to get access to credit and improve your rating in the process.
Why Was My Application Not Successful?
Every lender has a different underwriting process and criteria so the decision to accept or decline an application will always vary from lender-to-lender. Legally, lenders do not need to give you a reason why you have been declined, however, you can always write to them and by law, they must respond. Based on the general underwriting rules of guarantor lenders, below are some of the reasons that an application may not be successful.
Your basic criteria: Each lender has a basic criteria in terms of age, residence and income. Your application may be denied if you are not within the age guidelines of 18 to 75, are based outside of the UK, have a very bad credit history, are not in employment, on benefits or do not have an email address or valid debit account.
Your affordability: The lender needs to be sure that you can afford to make your monthly repayments for your guarantor loan. Your application can be rejected if based on several checks they conclude that you will not be able to keep up with repayments. This could be determined after reviewing your credit history, debt-to-loan ratio, income vs expenses and other information. In some cases, the amount you borrow may be reduced but if the lender still thinks that it will be a financial burden, your loan will not go ahead.
Your credit history: Whilst the main beneficiary is not expected to have the best credit rating and require a guarantor as extra security, there are still some credit histories that are too adverse for lenders to accept. This includes a history of bankruptcy or Individual Voluntary Arrangements (although some lenders do accept this). It can also be a case of having no credit history which is common for young people or those who just turn 18 – who simply have no other credit cards or income to base any history on.
Your guarantor: For most lenders, you guarantor must be at least 25 years old to be eligible to guarantee your loan. You must also find someone who is willing and able to take on the role of guarantor and be available to sign the loan agreement and answer questions on the phone.
For many lenders, they require your guarantor to have good credit and a strong employment status and income. Some loan providers we work with only accept guarantors that are homeowners (such as TFS loans), in which case you may need to find lenders that accept non homeowners such as Buddy and UK Credit.
The lender: Loan companies go through different spells and management and they will go through periods where they are happy to accept risk and fund lots of loans. But, they will also go through times where they are very cautious and have to limit who they lend to. In this case, it may be best to speak to the lender about borrowing less or whether they recommend finding another person to be the guarantor to maximise your chances of approval.