Looking for a loan but have a bad credit rating? Then a guarantor loan from a company like Amigo Loans could be the answer. Or maybe not. Take a look at my Amigo Loans review to see why not only will it cost you a lot of money, it could cost you your friendship too.
Plenty of people suffer setbacks in their finances at some point in their life and it’s nothing to be ashamed of. It’s a tough situation too, as the more you need the money, the more it will probably cost you.
If your credit rating takes a hit, then it becomes harder and more costly to borrow money. You may know that you’re able to make that monthly payment, but the bank doesn’t trust you. So what other options are there? Well, a guarantor loan is one that solution that you may have heard of.
What or who is a guarantor?
A guarantor is somebody who steps in and agrees to pay someone’s debts if that person can no longer make payments. A guarantor is usually a family member or a close friend. Guarantors are most commonly used for people renting properties, but can also be used when borrowing money.
What is a guarantor loan?
A guarantor loan is a loan that involves two people. The borrower will receive the money and make all the payments as long as everything runs smoothly. The guarantor will be called upon if the borrower can no longer make the payments and he or she will then become responsible for the debt.
Will it improve your credit rating?
If you are the borrower, it is true that an Amigo loan can improve your credit rating as long as you keep up with repayments. But if that’s your main goal, this is an incredibly expensive way to do it (see below with regards to value). A better option would be to look at taking out a credit card such as the Cashplus card. As long as you make sure you pay the card off in full each month, you can improve your rating at little or no cost. Head over to Money Supermarket to find the best card for you.
If you’re the guarantor, the loan won’t show on your credit file. Unless, that is, the borrower fails to pay and then you also fall behind on payments.
Can Amigo Loans be trusted?
Let me be straight here, Amigo Loans isn’t some kind of fly by night business that will go for your kneecaps if you fail to pay. Created back in 2005, they now cover almost 90% of the guarantor loan market.
And take a look at Trustpilot and almost every Amigo Loans review is glowing. But, it’s not all rosy. The company is under review because 95% of all complaints against it were upheld – a phenomenal number.
But there are also some other very important points to consider before taking out that guarantor loan.
What being a guarantor really means
If you read a lot of money advice forums or you Google Amigo Loans reviews, you’ll find many guarantors thought they were acting as a character reference. “Yes, my friend will pay the loan back, no problem.” However, that signature means far more. The moment a guarantor signs on the dotted line, it means one thing… they are responsible for the loan.
The applicant may be the person receiving the money, but here is the worrying truth. If they fail to make a payment, the loans company won’t bother chasing them. After all, they weren’t confident the applicant could make the payments in the first place. No, they will head for the guarantor. They are seen as the person who is better off and so are a far easier target.
Is Amigo Loans good value for money?
You may think that with potentially two people who are able to make payments, loan companies may offer a competitive interest rate. Well no. Quite the opposite in fact. Guarantor loans generally come with an interest rate of anything over 40%. Now when you consider that many companies offer a loan around the 3-10% mark, this is incredibly high.
Compare the cost of a £4000 loan over three years.
Take a look at some of the best loans available on the market at the moment.
Zopa offers the best value with an APR of 5.3%. This will mean paying back £120.26 per month.
Alternatively, you could choose Amigo Loans. They charge 49.9% and the same amount borrowed will cost you £195.16 per month. Now that’s over 50% more every month!
Over three years, the loan from Zopa will cost you £4329.36, but choosing Amigo Loans will cost you £7025.76. Can anybody really afford to pay almost £1000 more per year?
You’re probably wondering why I’m showing you the difference between a guarantor and a standard loan? After all, why consider a guarantor loan if you qualify for a standard one? Well, there is a reason as you’ll see below.
I hate to preach, but if you are in a situation where mainstream lenders are unwilling to lend you money, there’s generally a good reason. If you can help it, try to steer clear of borrowing money.
But, if you really need to borrow, my advice would be to avoid guarantor loans completely. They are far too expensive and I’ve read many stories where friends and family have fallen out. I also think that asking someone to act as your guarantor puts undue pressure on them.
If somebody wants to help a friend or family member out financially, then that decision should come from them alone. The best option would be for the potential guarantor to take out a loan in their name at a lower rate and then to transfer the money to their friend. Over the length of the loan, as you can see above, it could save £1000’s which would mean less chance of the borrower defaulting. It would then be advisable for a payment agreement to be made and put into writing. For more information on lending between friends and family, I strongly recommend you visit the Net Lawman.
There is even a budgeting app now called GoSavex that helps set up loans and repayment methods between friends.
That said, my main tip for lending money is to avoid it at all costs. However, if you must, lend only as much as you can afford to lose.
And in case the title of this post wasn’t quite clear and you didn’t quite get the gist of my Amigo Loans review… If you are thinking about taking out a guarantor loan. Don’t! Avoid Amigo Loans!