October 25, 2023
Your credit file comes into the picture when you need a larger sum. Although it is not quintessential, the importance of a good credit score, which tells about your past payment behaviours and reveals how likely you are to make a default, cannot be ignored.
Long-term loans come with a longer repayment period, so it is crucial to have your credit report stellar and a strong repaying capacity. The approval criteria could be a bit stricter. When you have to borrow a smaller sum, your lender will be more flexible. They will not ask you for collateral and guarantor.
Long-term loans are backed by collateral but cannot offset the risk involved because of your poor credit history. Therefore, you may be asked to arrange a guarantor, who will be a third person and give the lender the guarantee that the payment burden will be passed to them when you fail or refuse to pay off the debt.
If so, the credit points of the guarantor will also be affected, which is the most common reason why people flinch from acting like a guarantor. You may need a long-term loan for various purposes, and sometimes, it is not possible to wait until credit score improvement.
Does that mean you cannot qualify for a long-term loan if that is the case? No, not at all, there are a few lenders that provide long-term no guarantor loans.
What are long term no guarantor loans, and how do they work?
Long-term no guarantor loans are the same as long-term loans, with the only difference being that they do not require a guarantor. Since they do not require a guarantor, it does not qualify for a long-term loan, which is duck soup. You will still be viewed as a borrower with a high default risk.
Your lender will ask you to put down collateral of a larger amount to offset the risk. If you make a default, they will liquidate it to get their cash back. Sometimes, a lender might not be willing to approve your application as an individual borrower. They may ask you to apply for these loans with your partner.
A joint loan is always a better alternative than an individual loan because your lender will gauge the repaying capacity of both parties. These loans are effective only if your partner has a good credit score. Lenders are more open to approving joint applications for long-term loans as they can call upon the second borrower to pay off the whole of the debt in case you refuse to do so, regardless of the reason.
Before you seek long-term no guarantor loans, do research so you get the best interest rates. Check the eligibility criteria, which may vary by lender.
What benefits can you avail of with long term no guarantor loans?
Long term no guarantor loans offer a variety of benefits. Some of them are below:
1. You can spread the cost
Short-term loans will require you to pay down the debt in full or in a few instalments. They put a lot of burden on your budget even if you borrow a small sum, but with long-term loans, you can spread the cost over a lot of months.
Monthly instalments will be small, so you will not feel any difficulty paying off the debt. The total interest you pay could be a lot because of an extended repayment term, but that is still more affordable than falling behind on debt and dealing with consequences.
2. You can do up your credit score
Long-term no guarantor loans will require you to make monthly payments over the years, which gives you a chance to make your credit score better. With timely payments, your credit score will get a boost. Your lender will report timely payments to credit bureaus.
Since your older inquiries become older, this will also help you notice a significant improvement in your credit points, but bear in mind your on-time payments cannot remove older inquiries and past defaults.
3. These loans help maintain liquidity
As the small payments will be made towards the debt, you can easily retain your cash and allocate it for your other expenses. It will be much easier for you to easy to budget around the fixed payment.
4. Tax benefits
Long-term loans are subject to tax exemption. The interest you pay is considered your monthly expenditure, and you can use it against the total tax you have to pay. This helps save you money that you can use for something else.
5. Repayment flexibility
The term length hinges on the sum you borrow, but lenders will be flexible with the repayment period. For instance, if you borrow £50,000 for a period of 10 years, it does not mean that the other person will also get the same amount with the same term length. Depending on your financial situation, it could be 12, 15 or more years.
A lender will assess your financial situation to decide how much money you will be able to pay every month, which decides the repayment term of the debt. In future, when your financial situation improves, you can refinance the debt, which will put you on a different payment plan and the term of the contract.
The final word
Long-term, no guarantor loans can be qualified, but a few lenders will be willing to approve an application without a guarantor. FloraFinance can do so. It is a direct lender that provides long-term loans without a guarantor, even if your credit rating is not so perfect. In fact, you will be able to leverage the competitive interest rates.
However, your lender will put some additional conditions to minimise their risks and ensure that you do not face complications because of unaffordable debt.
Ellie Brown is a proud resident of the UK and love to be a content writer and editor for the last 9 years. Writing blogs and articles is her passion that one can explore at the top blogging platforms. Ellie holds a key position at Florafinance as the Senior Content Editor and Chief Loan Consultant, leading a team of more than 70 professionals. Ellie Brown covers the major aspects of the UK’s lending industry in her blogs and guides loan seekers who come at Florafinance to apply for a loan. She possesses the Post-Graduate degree in Finance and Investment.