July 8, 2021
Instalment No Guarantor Loans: Fact or Fake
By : Ellie Brown
As the name suggests, no guarantor loans are those loans that require no guarantor despite a poor credit rating. When you borrow money, a lender will look over your credit file to see if you are loyal to your financial commitments.
A bad credit score undoubtedly is a big hurdle in getting a loan signed off on, and if you get it approved, you will have to pay high interest. Lenders charge high interest because a bad credit report makes it risky.
However, you can avoid paying high interest if you arrange a guarantor with a good credit score. It can be your significant other, your friend or any one of your acquaintances.
Sometimes, it is not possible to arrange a guarantor, and as a result, you end up taking on no guarantor loans.
Paying off such debt can be tricky because of a lump payment. Still, you must have seen a couple of lenders that advertise no guarantor loans as instalment loans, which means you will be paying down the debt over an extended period while the other requires payment in one go on the due date.
No guarantor loans are small loans, so it often raises doubt if it is a bait to attract customers.
No guarantor loans are kind of payday debt
No guarantor loans are short-term loans, and hence lenders want you to pay them back in a lump sum. For instance, if you have borrowed £100 or £500, it can be quite complicated to accept payments in instalments.
The repayment span for these loans is not more than 14 days or sometimes not more than a month. The lender requires you to pay off the whole of the debt on your next payday. Therefore, you can consider these loans to be payday loans. They have the same features as payday loans.
The size of the debt plays a crucial role
If you have borrowed a small amount of money, you will naturally end up paying the whole of the debt in a lump sum. However, a couple of lenders try to allow for instalment payments, so it does not put a lot of burden on you.
Such lenders can allow you to pay down the debt in weekly instalments. It means instead of paying down the whole of the debt in a lump sum. You will be paying it down in weekly instalments.
It means the total amount of the debt will be divided into two or four equal instalments and then set a due date for each instalment. For instance, if you have to pay off £500 inclusive of interest, your lender can divide this amount into two instalments like:
- Instalment 1 on 7 April – £250
- Instalment 2 on 14 April – £250
If the debt is divided into four equal instalments, the amount will come down to £125. It depends on the lenders’ policy whether they want you to pay back in a lump sum or instalments, and if they opt for the latter method, how many instalments will they allow for?
Even if the lender has the clause of accepting payments in instalments, it is not possible to allow for it because of the size of the debt. If you have borrowed, for instance, £100, of course, it is not possible to divide in fixed weekly or bi-weekly instalments.
For such a small amount, lenders will not bother about this method. They will naturally seek the payment in a lump sum.
So, it is clear now that non-guarantor loans can be instalment loans, provided the amount of the debt is significant. It will not be possible for a lender to divide it into fixed instalments if it is too little.
Paying in a lump sum can be more affordable sometimes
You can think that just because these loans can be repaid in fixed weekly or bi-weekly instalments, so it is a great idea to borrow more. Do not make this mistake. Do not forget that you are to pay interest on top of what you borrow.
It can seriously take a toll on your finances. If you need only £100, make sure that you do not borrow more than that even if you are to pay off the debt in instalments. Of course, paying off £100 in a lump sum is far more affordable than paying down £500 in weekly instalments.
A rule of thumb says that you should never borrow more than you need. Assess your repaying capacity and make sure that it will not affect your ability to meet other regular expenses. Otherwise, you will fall into debt.
No guarantor loans can require repayment in either instalment or a lump sum. It depends on the amount of money you are borrowing and the policy of the lender.