When it comes to loans, there are a whole hosts of different types, all with different points of merit and criteria that can be fitting of many different types of people.
Here we are going to look at some of the key differences between guarantor loans, and payday & logbook loans.
With payday & logbook loans, the interest rates are usually much higher than with guarantor loans, there can be many reasons for this, ranging from, the perceived risk of lending to the demographic of a given loan, i.e are payday borrowers as likely to pay back as someone who wants a guarantor loan?
There are also other reasons for the differences in interest rates, a guarantor loan is guarantee in repayments by a third party, and this third party must have a source of income, a reasonable credit rating, and in some cases be a tenant.
In general, guarantor loans can be administered as quickly in 1 day, meaning that if a potential customer made an application, and qualified for the loan, and the guarantor was accepted, they could have the cash in their bank within 24 hours.
This affords lenders additional security in relation to borrowing to people wanting guarantor finance.
When it comes to logbook loans, a vehicle is put forward as collateral, with vehicles being depreciating assets, they will usually only offer up to 70% LTV, meaning that if you want a loan of £7,000, then your vehicle must be worth at least £10,000 AND it must be free of any outstanding finance.
There are no such issues with guarantor loans, because the loan has someone who is prepared to make the repayments in the event that the customer finds themselves in a position where they cannot make them. So lenders are working with less risk and this can be reflected in the interest rates, passing a lot of that saving on to the customer.
Also, Guarantor loans are not as subject to a credit check as people who take out payday loans, because, again, the loan is guaranteed by someone who can afford the loan, so there are no issues around the (sometimes astronomical) interest rates charged by payday loans companies. (more…)