Understanding Guarantor Loans

Guarantor Loans are designed for people who can’t get credit on their own.  This could be for a number of reasons, but mostly it is due to having a poor credit record.  With a guarantor loan, the borrower finds another person who will agree to take over the repayments if the borrower fails to pay.  As the loan is “guaranteed” by someone who has good credit, lenders are much more likely to agree a loan.

 

guarantor loans are designed for people with bad credit or who cant access credit
guarantor loans are designed for people with bad credit or who cant access credit

Your Credit History Doesn’t Matter

Unlike traditional lenders who base their decisions on the way you have handled credit in the past, your credit history is not important with a guarantor loan.  What is important, as with any loan, is that you can comfortable afford the repayments.  This is known as the affordability criteria and lenders must check that the loan will not cause you undue hardship.

Who Can Be My Guarantor?

Virtually anyone who meets the lenders criteria although your partner/spouse cannot act as guarantor.  It can be a relative, friend, work colleague – even your boss! They will need to be between the ages of 25 and 74 and have a good credit history. Although some lenders do prefer guarantors who are homeowners, it is possible for tenants to act as guarantors too.  They need to understand the risks of being a guarantor and accept that they will be responsible for repaying the loan if you can’t.

 

How Much Can I Borrow?

Guarantor loans are generally larger and longer term than doorstep loans or other bad credit loans.  The minimum you can usually borrow is £1000 over 12 months and the maximum is usually £7500 over 5 years.  As with any form of borrowing it is important to weigh up all the pros and cons carefully before making a decision.  This type of loan is a major financial commitment and you have to decide whether you could still meet the repayments if your circumstances changed.

How Much Will I Pay Back?

The depends on the amount you borrow and the length of time you need it for.


This is a representative Example from Trust Two who are a licensed provider of Guarantor Loans

Representative example: Borrowing £4,000 over 3 years at an interest rate of 34.0% p.a. (fixed), you will repay 36 monthly payments of £178.69. Interest payable £2,432.75. Total repayable £6432.75. Representative 39.9% APR.


What Are The Risks For A Guarantor?

As a guarantor, you agree to take over any repayments until the loan is repaid if the borrower cannot pay.  This is a significant financial commitment and should not be taken lightly.  You should trust the person who you are guaranteeing and feel comfortable in helping him or her.

 

What Can Go Wrong With Guarantor Loans?

In most cases, guarantor loans work well and the guarantor never has to step in to meet repayments. However, circumstances can change for both borrowers and guarantors so sometimes things don’t work out so well.  Be aware that this sort of agreement can cause a lot of stress for both parties, particularly if the borrower gets into financial dire straits.  If this is a family member it can cause big rifts within the family, and make things very awkward for a while.

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Brighthouse the pay weekly store. Worth it?

Brighthouse pay weekly stores
Brighthouse allows customers to pay weekly on their purchases

Love it or hate it, Brighthouse has become a permanent fixture in the UK high street. With over 300 stores nationwide, they are the biggest rent to own retailer in the United Kingdom.   Brighthouse offer a range of household appliances, TVs, computers, mobile phones and even furniture and beds, all on pay weekly terms.

For many people, Brighthouse and other rent to own companies provide a vital service, helping them to purchase products which would be unaffordable if they had to be paid for all in one go. Critics of rent to buy stores say that their products are expensive, interest charges are high and customers are often forced to buy insurances, warranties and other bolt on items, driving costs up even further.  In fact a government enquiry found that 1 in 5 rent to own customers were falling into arrears on their agreements.

How Do Brighthouse Prices Compare To Other Retailers?

Comparing like for like with Brighthouse was not always straightforward, as they used their own manufacturer codes on their website.   They do now include manufacturers codes on their listings. However, it is safe to say that prices at Brighthouse are significantly more than at other retailers.  We looked at several products to see how prices compared to other UK retailers.  In some cases we found that Brighthouse products, with credit were nearly three times more expensive than when purchased elsewhere.


Iphone 6s – Silver 16GB on Vodaphone.
Brighthouse Price – £903.46 with Five Star Cover (more about this later)
Cost of Credit: 78 weeks payments @ £18.50 a week – total cost £1443.00
Interest Rate/APR/ 99.8%

Equivalent Item at Misco.co.uk  – £622.80

* Prices correct June 2016. The Bright house phone is tied to Vodaphone, and has £30 credit, case and screen protector included.


Samsung Addwash 9kg Washing Machine
Brighthouse Price – £942.01 with Five Star Cover
Cost of Credit – 156 weekly payments @ £12.00 per week – total cost £1872.00
Interest Rate/APR/ 69.9%

Equivalent Item at Currys.co.uk – £599.00


With the washing machine example above, the item costs nearly 3 times as much than it would if purchased from another store.

So Why Is Brighthouse So Popular?

Brighthouse offers credit to customers who may not be accepted elsewhere, those on low incomes, on benefits and those with poor credit.  Customers do need to be credit checked but Brighthouse is far more likely to accept customers (albeit on higher terms) than other providers of credit.  The pay weekly terms make items appear to be affordable, and customers seem to prefer the comfort of fixed weekly repayments.  Despite a survey of rent to own store customers revealing that nearly 75% of them feeling that they are paying too much, the difficulty in obtaining credit elsewhere made this form of borrowing a necessity.

The Infamous 5 Star Service

All Brighthouse prices are quoted with their 5 star service package which appears to be a warranty and insurance package rolled into one.  Quotes given state that items are not sold separately so it appears that you must take out this package when purchasing an item.   It seems to be added automatically when you purchase and despite looking through their site, we could not see anything which says this item can be removed.

The 5 Star service includes delivery and installation where applicable, unlimited repairs, loan products and like for like replacement.  Whilst this looks like offering additional peace of mind, only around 5% of modern consumer products break down in the first five years after purchase.  Therefore 19 out of 20 customers who have this insurance will never need to use it.

Apply Online Buy In Store.

Whilst you can apply in store to purchase a product, applying online and completing your purchase in store is the usual way they operate.   Once an application is submitted, it is then credit checked and applicants are invited into their local store to complete the application process.  This will include bringing the necessary documents to prove identity and residence.  The customer is then pre-approved for a line of credit.

Making Payments

Customers can choose to pay weekly or monthly by direct debit.  Customers who choose to make payments monthly will have to pay 4 weeks in advance up front.  Customers paying weekly only need to make one payment up front. Easy Pay is an option which automatically deducts payments from a debit card ensuring that no payments are forgotten.

Late Payments

Brighthouse have been criticised in the past for the aggressive way they chase late payments.  Home visits and numerous telephone calls are not uncommon.  If a payment is late then a £5.50 fee is charged.  If a cheque is returned unpaid or a direct debit fails there is a further charge of £5.

Brighthouse urges customers who are having difficulty meeting their repayments to contact the store immediately.  Customers who have done this however have reported that the response is not always helpful or sympathetic.

Are There Alternatives?

If you have been on benefits for at least 26 weeks and need essential items like furniture you may be able to get a loan from the social fund.

Alternatively, look for bargains on sites such as Gumtree or even freebies on Freecycle.

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Doorstep Loans – How Do They Work?

Doorstep Lending UK
Doorstep loans are a popular form of borrowing for those with poor credit and low incomes

With the media spotlight currently on payday lenders and the exorbitantly high interest rates they have been charging, today we are going to look at another form of short term lending, doorstep loans.  Doorstep loans are often marketed to customers who would not necessarily qualify for loans from other lenders, for example people who have low incomes, are disabled, on benefits or who have very bad credit.  Doorstep loans are sometimes known as home collected credit.

How Doorstep Loans Work

Doorstep loans are cash loans delivered to the borrower at home.  The doorstep lenders employ agents who visit customer at home, fill in the paperwork and issue the loan.  Repayments, which are usually made weekly are collected in cash directly from the customer at home.  These loans are usually repayable over 20 to 52 weeks and payments are usually fixed so you will pay back a defined amount each week which will not change.

 

doorstep loans from Morses Club

Affordability & Lending Criteria

Whilst doorstep lenders are usually not too concerned by bad credit history or previous defaults, one thing they must check by law is that the loan is affordable.  This means that they must check that you are able to afford the repayments along with any current commitments and that meeting the repayments will not cause you financial distress or hardship.

How Much Do Doorstep Loans Cost?

Doorstep loans are an expensive form of credit and interest rates can run to 80% or more.  The interest rate will vary depending on the lender and their rates must be transparent and clear.  Ensure you understand exactly how much interest will be charged and how much you will be paying back in total before you sign the paperwork.  Below is a typical example of how much a doorstep loan will cost from one lender.  Remember each lender has different interest rates and this is just a guide.

Loan Amount/Period : £200 repaid over 20 weeks
Interest Rate: 50%
APR 756.5%
Finance Charge: £100
Weekly Repayment: £15
Total Amount Payable: £300

Considerations Before Taking Out A Doorstep Loan

Unfortunately doorstep loans are still the most available form of credit for those on low incomes, on benefits, unemployed and people with poor credit.  Because they are repaid in weekly payments it is often tempting to ignore the total cost of credit in favour of convenience.

Doorstep loan agents are also salespeople, they are often put under a lot of pressure by their area managers to sell loans or lend additional funds to those who are already repaying loans.  Whilst the new UK regulations on payday lending and home collected credit have improved the situation somewhat, some agents still report they are under increasing pressure to meet quotas.

Consider Alternatives.

If you have bad credit, are on benefits or have a limited income, it can be very tempting to turn to doorstep lending but they may be alternatives.  Consider whether you could ask a friend or relative for help or check whether there is a credit union operating in your area.  The ABCU (The Association of British Credit Unions) have a list of all their member unions on their website.

If you are on income related benefits for over 26 weeks and need essential items such as furniture, clothing or help with moving, you may qualify for a Budgeting Loan from the Social Fund.  These are interest free loans which are paid back weekly.  For more info visit  https://www.gov.uk/budgeting-help-benefits/how-it-works

 

Ensure Your Lender is licensed

If a doorstep lender is not not licensed then he or she is a loan shark.  Only deal with reputable companies and check their license details on their website before you enter into any agreement.

Your Lender Must:

Leave you a copy of the paperwork.
Leave you a payment book which clearly shows the amount of the loan, your weekly repayments
and how much you have to pay back.
Inform you of your right to change your mind.
Do an affordability check on you before a loan is agreed.
Sign your repayment book or give you a receipt for each repayment you make.
Be fully licensed as a doorstep lender.

 

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