Pay Day Loans have received a great deal of bad press in recent months due to their exorbitant charges and interest rates, it now seems as though people are turning to Guarantor Loans as a much cheaper alternative.
A recent study by Solution Loan’s has shown that a new type of loan called a Guarantor Loan is now becoming a popular alternative to the Pay Day Loan, with 25% of Guarantor Loan applicants now using this money for “Short Term Cash”.
Next April the Financial Conduct Authority (FCA) will start regulating the Pay Day Loan with a cap on rates and charges due to be in force on 2nd January 2015, so with the possibly decline of the Pay Day Loan we are already seeing the rise of a new type of Loan called a Guarantor Loan.
The Pay Day Loan has sky rocketed in popularity since the Credit Crunch in 2007 because was one of the only types of loan that people with a poor credit rating could get access too. Pay Day loans are typically short term loans for only a few weeks up to the borrowers next payday.
The Pay Day lenders will argue that all fees and charges are fully published up front so they are doing nothing wrong; but with rising living costs and limited borrowing alternatives, the only borrowing option for many people has been the Pay Day Loan which in turn has caused many people to be driven deeper and deeper into debt; but with the UK’s personal debt level having soured to a record £1.4tn, people desperately need a cheaper form of short term borrowing.
Guarantor Loans Are Over 9 x Cheaper Than Pay Day Loans
The Guarantor Loans is a significantly cheaper alternative to the Pay Day Loan; with interest typically around 627% APR compared to 5,800% APR for many Pay Day Loans. Guarantor Loans do though have many of the features that people have needed with Pay Day Loans:
- Small loans available for short periods (a few days or weeks)
- Fast access to cash - often within one hour
- Loans from £50 to £500 (larger loans up to £10,000 are available but with different terms)
- Flexible repayment terms
- Borrower is not credit scored
- Interest charged on a daily basis to keep cost to a minimum
A Guarantor Loan Required A Guarantor
A Guarantor Loan requires a friend or family member to back the loan application and become the borrowers Guarantor; the Guarantor does have the responsibility to pay back the loan if the borrower defaults; friends or family members therefore make the best Guarantors.
The lender does require the Guarantor is to have a clean credit rating.
25% Of Guarantor Loans Are Used Fort Short Term Cash
In a recent study of their borrowing data, Solution Loans have looked at how borrowers have chosen to spend the money raised with a Guarantor Loan:
- Short Term Cash 25%
- Other 22%
- Home Improvements 20%
- Car 10%
- Holiday 9%
- Debt Consolidation 7%
- Pay off Payday Loan 3%
- Education 2%
- Wedding 1%
- Business 1%
Most interestingly is that 25% of people have used the money for short term cash; the precise market that Pay Day Loans are targeting.
As a Guarantor Loan is over 9 x cheaper than Pay Day Loan the above figures are not really surprising; though what these figures cannot tell us is how many of the people who said they borrowed the money for home improvements or car repairs would have previously used a Pay Day loan.
People Need Short Term Loans
There is a very real need for quick short term loans to be available; for everyone has those unexpected expenses they need cash for, whether it be a broken down car or an unexpected utility bill; though with soaring personal debt levels the need for a more cost effective option is plain to see.
The Guarantor Loan offers many of the same benefits as a Pay Day Loan; they are available fast, to people with a poor credit rating and for flexible time periods, but most importantly without the hefty price tag.
About Solution Loans
Solution Loans are a loans intermediary specialising in Guarantor Loans. They pool together all the very best Guarantor Loans from a range of lenders, so making it much quicker and easier to find the right loan. Using their online service is free and they will never ask for any upfront fees. For more details see http://www.solution-loans.co.uk/guarantor-loans.asp.
Debt Loans Finance Money Borrowing