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Which is Better a Payday Loan or Guarantor Loan?

If you have a poor credit score then the choice of lending that you have can be quite small. This is because many lenders are not willing to take a risk with someone with a low credit rating. Your main choices may be limited to lenders which do not take credit rating into consideration, such as payday and guarantor lenders. It is worth investigating other options though, a local credit union might be worth looking in to, for example. However, if you are comparing these two types of loans, it is worth understanding more about them.

About payday loans

A payday loan usually allows those with poor credit record to borrow up to £1,000. The amount that is offered will depend on how many loans the borrower has had in the past and if they have managed to repay them. So, if you have not had payday loan before then you may only be able to borrow a few hundred pounds. If you have had one form that lender before and repaid it on time, then they may be able to lend you more money.

A payday loan can be arranged very quickly, sometimes within a few hours, so is ideal if you need money in an emergency. You will have to repay it very quickly though. Repayment is set up to leave your account by direct debit when you get paid, hence the name. This means that you will not have the loan hanging around for too long. However, it does mean that you need to find the money to repay the loan all in one go which ca be tricky for some people. If you borrow a lot of money then it could be hard to find what you need to repay it and then if you do, it could be hard to manage for the rest of the month with that money gone. It is therefore really important to make sure that you check your finances and make sure that you will be able to repay the loan and that you will be able to manage once it is repaid.

About guarantor loans

A guarantor loan is also designed for those with a poor credit rating but it will tend to lend higher amounts usually in excess of £1,000.  They take a bit longer to arrange as well because your guarantor will have to have a credit check. You guarantor is someone that you nominate who will make any repayments that you are unable to. So, if you miss a repayment, they will be asked for the money instead. By having this back-up, it means that those with a poor credit rating are still able to take on loans for fairly high amounts of money.

With this type of loan, you will need to know someone that has a good credit rating and that is prepared to take on this responsibility for you. You will need them to understand that they will have to make repayments for you and even if you are really hopeful that you will be able to make the repayments yourself, there is a risk that they could end up repaying it all for you. You will also need to agree with them, as to what happens if they do make a repayment for you. They may just be happy to pay it or they may feel that you should repay them eventually. If this is the case then you will need to come up with a plan for that with them. It is wise to have this all in writing so that you both know what you agreed.

Which is best?

Choosing which is best will depend on your situation. If you do not need to borrow much, then it would be sensible to get a payday loan and then you will not need to borrow more than you need as this will be unnecessarily expensive. If you go for a guarantor loan though, you need to find someone that is willing to be your guarantor.

With all loans, it is also important to consider the cost and how easy you will find it to repay. Think about whether you feel the loan will offer you good value for money considering how much it will cost you. Think about what you are buying with it and if you think that is something that you really want or whether you can wait. Consider the total cost, including the loan cost and whether you would still buy that item if it was that price in the shops. Also, look at how much you have to repay and when. Consider whether you will have enough money to do this or if there is anything that you can do in order to make yourself some extra money so that you can afford it.

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