Guarantor Loan vs. Payday Loan – Pound For Pound

The guarantor loans are also known as the ‘buddy loans’, for the amount of trust involved in giving the financial guarantee of a borrower in the first place. However, it has its own share of risks. One of the basic risks involved with a guarantor loan is that of loan default, in which case the guarantor will have to pay on the behalf of the borrower. This puts it in a different light altogether, as to whether or not it is a feasible option.

A major alternative for guarantor loans is payday loans. Both of these options are ideal for people who have a bad or no credit history, and as a result are refused loans from regular financial institutions. As with minimal regulations and easy terms, the option of payday loans and guarantor loans helps people make it through financial crisis.

But then there’s a fundamental question which stresses upon which one is better, payday loan or guarantor loan.

The Difference of Risks

Both, guarantor loans and payday loans involve risks. However, the risks might be different in both the cases. Guarantor loan brings forth risk to the guarantor who has to make the payment for the loan if the borrower fails to pay it on time for any reason. Whereas, in payday loans the borrower bears all the risk for if he/she is unable to pay off the debt the interest rates spike in no time and the total amount increases by many folds.

The Payment Time Period

Generally, in case of payday loans, the payment period for the borrowed amount is 30 days, which is the time it takes to receive your salary. This is because the loan is short-term and the high interest rates make it a point for the borrower to not delay it any further than that. Guarantor loans, on the other hand, have a more relaxed policy in this regard. The guarantor loans have a repayment time frame from 12 months to as long as about 5 years which increase the likelihood of receiving a payment.

Source of Income

If you think the payday loans are very much similar to the guarantor loans in terms of relaxed policies and terms, you must be mistaken. The guarantor loans do not ask for your proof of a steady income, which you ought to submit to the lenders in case of applying for a payday loan.

The Credit Score

The payday loan does not require you to have a good credit score prior to applying for the loan but it also has a major disadvantage of ripping you off of the money you already possess for the high rates of interest it charges. Guarantor loan on the other hand gives you the chance to build a positive credit history and score for the easy terms and stretched payment period.

Analysis of all the factors is highly essential when looking for options to acquire loan, and it is also important to make sure the one you select is a feasible one. With both the choices replete with pros and cons, it is better to go for the one which suits your financial status and foreseen expenses.