Loans without a guarantor for bad credit borrowers – things you need to know

Loans without a guarantor are personal loans, also known as unsecured loans. They have been designed to help people meet unexpected expenses when savings are low. Subprime borrowers generally struggle to get approval for a loan as the default risk is too high. Most of the borrowers end up with high interest rates. Since bad credit loans are small, they are required to be discharged in one fell swoop.  

Most of the people fail to tackle the loan. In order to avoid falling behind on payments, they are compelled to arrange a guarantor with a good credit score. As this reduces the risk for the lender, there is a possibility of getting qualified for affordable rates. 

But arranging a guarantor is not a cinch because a guarantor will have to settle the debt in case of default, and their credit score will be negatively affected. Since it is quite hard to arrange a guarantor, lenders provide loans without a guarantor to subprime people, and hence they are also called bad credit loans.  

What are the types of loans without a guarantor? 

As you know, loans with bad credit and no guarantor are also called bad credit loans; they are not the only type of loan. If your credit history is not stellar and you do not want to arrange a guarantor, you can consider the following loan options: 

• Payday loans 

Payday loans are also a type of small personal loan. They are ideal to fund unexpected expenses when savings have drained. Payday loan lenders do not lend more than £1,000. You do not need a guarantor to apply for a payday loan as they have been exclusively designed to target subprime borrowers. Money is offered based on your affordability.  

• Credit union loans 

Credit union loans are also personal loans. Subprime borrowers can also borrow money from credit unions, but they need to be a member. As compared to direct lender loans, credit union loans are inexpensive. However, if your credit score is extremely poor, you will most likely struggle to get approval from credit unions.  

• Personal loans 

Personal loans are also a type of loan without a guarantor. They can be used for funding emergencies as well as planned big expenses if your savings have run out or have not been earmarked to cover unexpected expenses. It depends on the policy of a lender and your affordability how much you will actually be able to borrow.  

All small emergency loans are also a type of personal loan. They can also enable you to borrow more than £5,000. However, if you need a larger sum, there is a possibility that a personal loan lender in the UK will expect you to arrange a guarantor. 

• Secured loans 

Secured loans are also a type of loan without a guarantor. Unlike other loans, they are backed by collateral. These loans are considered risky because there is a risk of losing your asset in case of default.  

However, as your loan is pledged against your personal asset such as a house, you might be able to qualify for lower interest rates as compared to unsecured loans. The APR of these loans is way lower than unsecured loans, but the presence of collateral cannot offset the impact of your poor credit score.  

What are the upsides of loans without a guarantor? 

Here are the advantages of loans without a guarantor: 

• You do not need to involve a friend or family as a guarantor, so your money matters remain private. You do not have to be embarrassed about your poor credit score. There is also no risk of ruining your relationship with them in case you struggle to keep up with payments.  
• Loans without a guarantor from a direct lender in the UK generally offer small loans, so they do not involve loads of paperwork like in the case of secured loans. The lending decision is reliant on your affordability and income sources. This is the reason why applications are processed faster. You will most likely receive money the same day you submit your application.  
• Loans with bad credit and no guarantor are flexible. The repayment term of these loans is decided after taking into account your financial condition. Normally, these loans are discharged at one go, but some lenders can require you to pay off in fixed weekly instalments.  
• If you pay down a personal loan in instalments over a period of time, this can ameliorate your credit history.  

What are the drawbacks of bad credit loans with no guarantor? 

While these loans provide instant cash, they are subject to certain drawbacks: 

• They come with exorbitant interest rates. Lenders charge higher APRs in order to mitigate the risk of default.  
• You will not be able to borrow a larger sum of money. Most of the lenders restrict the loan amount even though they claim to be offering a higher sum. In fact, most of the lenders will not let you borrow more than £1,000.  
• Lenders will have to run credit checks. As a result, your credit score will go down further. In addition, they will check your income to ensure that you can repay the debt on time. In case of poor affordability, you will be refused.  
• There is a high risk of a debt cycle. Without careful planning, you might end up borrowing more than your affordability. A loan rollover will quickly escalate the loan amount, and you will eventually find yourself in an ongoing cycle of debt. 

To wrap up 

Loans without a guarantor for bad credit are easily available, but it is essential that you take them out only when you are completely certain about your repayment history.  

You should carefully compare interest rates, APRs and repayment terms before using these loans so that you do not end up choosing an expensive deal.  

Consider alternatives if you do not find these loans affordable, such as borrowing from friends and family and budgeting loans.