In early 2005 James Benamor founder of the Richmond Group in the UK created guarantor loans
. They were born out of the frustration that there were no options for the subprime market other than doorstep lenders. The UK had yest to experience the payday loans boom so the list of options for people with bad credit or the unemployed was a very very small one. Over the next few years FLM became synonymous with guarantor loans, they were not a new product as such and where known by many names across the world but they were new in the UK and the market they targetted matched them perfectly. Today guarantor loans are probably the best known alternative to doorstep loans and with an APR around the same as a credit card they are massively cheaper than payday loans and the doorstep lenders.
They work because despite being a type of unsecured loan they have an element of security which the lenders like and this enables them to pass on lower rates of interest. The security is not a traditional asset like a home or a car but rather another person who has good credit, owns a home and is typically between 23 and 70. The concept means that the borrower is not means tested with a credit check neither does their situation affect their approval in anyway. A guarantor loans is often known as a tenant loan or an unemployed loan because it just does not matter one jot what the borrowers situation is, a guarantor loan is foundered on trust. If a person trusts the borrower enough to act as the guarantor for it (and therefore take responisbility for it) then that is good enough for the guarantor loan lender. Not only does it buck the trend of recent times with banks radically increasing their lending criteria it crushes the idea that unemployed people and people with bad credit cannot get loans. Not only can they do it but they can use the guarantor loans as a vehicle for breaking the bad credit cycle. By just being able to get the loan and repaying it on time and in full every month the borrower can repair his credit rating where previously he was stuck unable to get the credit he needed to prove to the banks they were back on track and a responsible borrower.
Today guarantor loans are often one of the first ports of call for people with bad credit looking for unsecured loans. While it is not easy to find a guarantor it is a lot easier and cheaper than many of the bad credit loans alternatives, particularly the payday lenders who often charge APRs well in excess of 10 times more. So they are cheaper, they allow people to help their friend or loved one and they give people access to credit that otherwise may not otherwise be able to. It is no surprise that the awareness of guarantor loans has over doubled in the last 12 months.