Why are Interest Rates High on a Guarantor Loan?


There are many types of loans and their interest rates vary a lot. Some can seem significantly higher than others and guarantor loans might be one of the lending types that can seem proportionately dearer than others. It is worth understanding a bit more about advertised interest rates and how guarantor loans so that you have an understanding of why they seem expensive.

Loan interest rates

When we see interest rates for loans and compare them it can seem that some are lots more expensive than others. For example, if you see an advertisement for a guarantor loan you may see that there is something which tells you what the equivalent APR is and it can be a huge percentage. You may wonder what on earth this is. The APR includes all fees and charges so is different to the interest rate that you might see when you are comparing loans on a comparison website. This might make it seem extremely high compared with the base rate of interest or with other products. It has to legally be put on advertisements to allow anyone looking at it to see exactly how much they will be paying but sometimes it can add confusion.

One way to get around this is to do some calculations yourself. It can be best to work out exactly what you will be expected to repay each month and for how long. Then you can add this up and work out how much you will repay altogether. You can do this for various loans and lenders and you will have a set of figures to compare. This is trickier when it comes to loans with no set repayment schedule such as an overdraft or credit card, but if you are comparing guarantor loans then this will be a method that will help you. If you are not sure of the figures then you should be able to find out from the customer service department of the lender that you are considering using.

Guarantor loans

Guarantor loans are loans where the lender can nominate a guarantor to cover the cost of repayments if they are unable to repay them. These tend to be used by borrowers with a poor credit record who cannot get money by other means. They will be able to get a loan like this because there will be someone to guarantee repayments if they cannot make them. This will enable them to borrow money when they would otherwise not be able to. The loans can still be pretty expensive though because there is still a risk to the lender and a cost of having to go elsewhere to get payments if the original repayments are not made.

It is wise though to make sure that you compare the costs of different guarantor loans. There are many different companies that offer the loans and they will charge different amounts. This means that if you compare these companies then you should be able to see which is cheaper. Then even though the loans are expensive, you will be able to save some money by going with one that is cheaper. It is always wise to do this when you are looking for a loan anyway. However, it is wise to think about the fact that it is not just cost that is important when you are choosing a loan. Although this will be a big factor and could have a significant impact on you, you may also want to consider the reputation of the lender, how good their customer service is and things like that. It can be wise to speak to people you know about whether they have tried this sort of loan and whether they used a lender that they could recommend to you.

So, although a guarantor loan is more expensive than some other types of loan it is because it is a risky loan for the lender. If you are able to take other types of loans then it may be worth considering these rather than the guarantor loan if they are cheaper. However, if you have a poor credit record then you will not have a great deal of choice. There will be some options for you though and it is important to look at them all. Also make sure that you will be able to repay the necessary monthly payments. These might be quite high so you need to find out how much they are and make sure that you have enough money available to pay for them. Make sure that you are aware of whether you have enough money available each month by looking at your bank statements and seeing whether you would normally be able to afford these extra payments. If you think that you would struggle then you will need to think about whether you will be able to reduce your spending so that you can afford them. Look at the sorts of things that you spend your money on and whether these are necessary or not. It might be that you will be able to go without some of these things in order to afford the repayments but you will need to be sure that you are prepared to do this and that you will be able to manage if you do this.

Is it Wise for a Student to get a Store Card?


Most students have a student loan to pay for their course and so the idea of borrowing more money can be scary for some of them and possibly parents. It is worth understanding that not all borrowing is bad, but it is wise to take all borrowing decisions very carefully. As students have little or no income then their borrowing options will be limited but some shops may be willing to take the risk by allowing them a store card. These can be convenient but it is worth understanding more about how they work before deciding whether you should have one.

Student borrowing

Student loans are very different to normal borrowing and it is important for students and their parents to understand this. Firstly, the loan repayments do not start until they graduate and they are earning enough to cover the cost of the repayments. This means that they need not worry about the loan while they are still a student. They also may not even have to repay the full amount that they borrowed. After thirty years the loans are written off and so any unpaid balance remaining does not have to be repaid. This means that it should not really be a factor when they are considering other loans. Once the student graduates, their student loan repayments will be taken out of their tax code so they will be paid automatically. This means that they will have a smaller income compared with those not having a student loan repayment to make. However, it will not be a significant chunk but will mean that they will have to be careful when taking on debt, to make sure that they have enough money to cover the repayments.

Store cards

Store cards are a way of borrowing that is very similar to credit cards. You use the card to buy things in the store and then you can wait to repay it until the bill arrives. There are options when the bill arrives and you can either just repay a minimum balance, which usually just covers the interest and a little bit more or you can repay the full amount. Although the bill may not clearly state this, you can also pay any amount in between the two. If you do not repay the full balance you will be charged interest on the remaining balance. Interest on store cards can be high – usually higher than a credit card. This means that it could be that getting a store card may not be a wise idea for anyone that is not intending on repaying it in full.

Store cards are also limiting in that you can only use them in one particular store and any other branches or stores under the same parent company. This means that you might be tempted to only shop at that store so that you can use your card. There may be cheaper stores that you ignore for this reason or you may even buy more than you need because you have the card and you know that you will not have to pay for the items that you have bought immediately. However, on the plus side, if it is a store that you shop in a lot and your card allows you to get discounts and special offers then it could be worth it as long as you use it wisely. It is best to use a store card to take advantages of offers on items that you would have bought anyway and repay it in full when you get the bill so that you do not pay anything for it. Effectively you are then getting interest free credit. You do have to be well disciplined though to make sure that you do not spend more then you need. You can set up a direct debit to pay off the bill in full though so that there is no chance of your forgetting to do this.

Conclusion

It is therefore not a straightforward decision as to whether a student should get a store card. Although the student loan has no bearing on the decision, they still need to be aware that a store card can be an expensive way to borrow money. There might be better ways to borrow available to them and it is well worth comparing the different costs of borrowing to see whether there are cheaper ones. It is also wise to think about the fact that students have no or limited income which means that they may not be capable of easily repaying any debt that they take on. As lenders will see them as a higher risk; due to their limited income, they may also find that they only get offered loans at a very high rate of interest which can mean that they will be extremely expensive.