Unsecured loans and guarantor loans are both personal loans aimed at helping people meet various types of expenses when cash is tight, but they are both slightly different. Unsecured loans are aimed at funding unexpected and planned expenses, while guarantor loans are aimed at helping people tide them over during financial emergencies.
The loan amount of unsecured loans could be between €1,000 and €25,000, while the loan amount of guarantor loans cannot be more than €1,000. The latter is normally targeted at subprime borrowers.
Unsecured loans vs guarantor loans
Here are some aspects or features on which these loans differentiate from each other:
- Collateral
Unsecured loans are personal loans. They are not backed by your house or car. Despite a default, you are not at risk of losing your asset, although no experts recommend abdicating responsibility.
Guarantor loans for bad credit are also not subject to collateral in spite of abysmal credit ratings, but you will need to arrange a guarantor whose credit report is up to scratch.
- What you need to qualify
The basic criteria for qualification for personal loans include an impressive credit rating. Personal loans for emergencies have the criteria to entertain subprime applications, but big unsecured loans are difficult to get signed off on with a poor credit rating.
Guarantor loans are meant for subprime borrowers, so lenders will emphasise your guarantor’s credibility. They must have a decent credit report.
- Approval odds
You might find it challenging to have an unsecured loan with a questionable credit history, but the opposite is true with guarantor loans.
- Risk to a borrower
The risk to a personal loan borrower is not as high because they do not have to lose any assets, such as a car or a house. It does not imply there are no repercussions of abdicating obligation. Your credit score will be damaged. A lender can take you to court as well.
The risk for a guarantor loan borrower is higher as the credit score will plunge. In addition, non-payment will ruin your relationship with the guarantor. Your guarantor will also face credit score damage even if they pay in full when you refuse.
- Intertest rates
The total cost of an unsecured loan is quite higher than secured loans as they charge high interest rates, but it is even higher for guarantor loans.
Unsecured loans vs guarantor loans: approval
Unsecured loan approval is heavily reliant on your creditworthiness, and your credit score plays a pivotal role in it. Indubitably, applications are repudiated when your past payment behaviour makes lenders suspicious about your commitment and loyalty. You will receive high interest rates if you somehow encounter a generous lender.
Guarantor loans are specifically designed to assist individuals with limited and not-so-impressive credit histories. Here, the decision is made based on the guarantor’s creditworthiness and your repayment capacity.
Unsecured loans vs guarantor loans: application process
The application process of both types of loans is more or less the same. The lending decision is made within hours.
Unsecured loans vs guarantor loans: risk factor
The risk is quite high, and the impact of default is also far-reaching. With unsecured loans, payment failure will result in credit score damage. Upon contacting you a few times, they will send your account to collection agencies, and if you are still relentless in defying your contract clause, your lender will take legal action against you. This will lead to a CCJ, which will remain on your credit report for up to six years.
These effects will haunt you even when you take out a guarantor loan, but there are some additional risks. Your guarantor will be called on to discharge the debt, which can lower their credit rating too. This will strain your relationship with your guarantor, too.
In both cases, your credit score will become worse, lowering your chances of being accepted for a loan down the track. In fact, you will struggle to borrow a small amount of money and obtain lower interest rates.
Choose a loan broker in Ireland, like GiveMyLoan, if you want to borrow money. They will introduce you to a lender that matches your requirements.
Unsecured loans vs guarantor loans: repayment cost
The total cost of both loans is high, but guarantor loans are even more expensive. It is because you are considered a highly risky borrower. The APR of personal loans could be up to 45%, while it may be more than double for guarantor loans.
The repayment term for personal loans is between 1 and 5 years. However, if the loan amount is meant to meet small emergencies, you will be required to discharge the debt in one fell swoop. Since guarantor loans are not large, you will get rid of them within six months, depending on the size of the loan.
You can pay before the scheduled time, but early repayment charges will be levied. This is applicable to both types of loans.
Which one should you choose?
You should get an unsecured loan when your credit score is good. They are also suitable when you need a large amount of money for planned expenses, such as a wedding and a vacation. A decent credit profile will preclude you from qualifying for better interest rates.
You should choose a guarantor loan if your credit score is not stellar and you need a small amount of money for emergencies. Be cautious while borrowing money because your guarantor will also suffer from the consequences.
Whatever loan you take out, look for better interest rates. Choose a private money lender in Ireland who offers the best deals. Contact a broker, as they would help you get the best deal.
To wrap up
Personal loans and guarantor loans are both unsecured loans, but they are still different. Guarantor loans specifically target subprime borrowers who need money for emergencies, while personal loans can be used for large expenses as well. They can be applied for by both good and bad credit borrowers. Both have their own risks. They should be carefully assessed so you do not struggle with payments.
