All you need is a good buddy and you may be able to get a Buddy Loan. But what happens if your financial situation changes and you can’t pay it back?
Guarantor loans have become a popular and more attractive alternative for people who want instant cash without the astronomical interest rates and short repayment terms of payday loans, especially if they can’t get loans elsewhere because of a poor credit history and score. Buddy Loans is a leading guarantor loans company in the UK, offering people the ability to borrow between £1,000 and £10,000 and pay it back over one to five years, as long as they have a buddy to guarantee the amount.
Guarantor loans will usually give you a payout on the same day that you make an application, just as payday loans generally do, and they may be the only option for people who have defaulted on loans in the past and can’t get financing from banks or other financial institutions. Guarantor loan firms like Buddy Loans will consider applications from people who have had county court judgements (CCJs) against them for debt, as they can drastically affect credit ratings — and so they can be a financial lifeline for some people, giving them a “financial hand-up” in their time of need.
Anyone can apply for cash from Buddy Loans for any reason, from paying bills to financing for a new car, home improvements, school fees — even for a wedding. The company says there are no limits on what you can use the money for, calling what they provide “any-purpose loans”. Repayments are spread out on terms that suit customers and not in the typical 30-day period that payday loans require.
If you do have a bad credit history and are turned away by other financial firms, a loan with Buddy Loans will work in your favour in another way: it will help you to improve your credit history as long as you keep up with your repayments and don’t miss any. Getting your credit score back into shape can be vitally important for your future — if you plan to get a mortgage or other financing, for instance.
What Exactly Is a Buddy Loan?
A buddy loan is one that’s not based on the applicant’s credit history — how good (or bad) they were at managing loans and other financing in the past, including defaults — but more on trust. That means selecting a buddy who knows and trusts you and that Buddy Loans can, therefore, trust too.
So if you tell your buddy that you want to get a loan and explain why, they’re likely to weigh up whether you need it, what the risks to your existing finances might be and if they are in a position to, or should, back your loan by being your guarantor.
Clearly, no one will guarantee a loan that you take out if they’re not confident you need the cash and can pay it back and on time. Because if you default, your guarantor will be obliged to make the repayments. So you need to choose your buddy carefully and make sure they understand what’s involved.
Who Can Be Your Loan-Guarantor Buddy?
A “buddy” to guarantee a loan with Buddy Loans doesn’t only have to be a friend but can also be family members or colleagues at work. Perhaps they already know something about your financial affairs, or maybe you’ve recently talked about trying to get a loan for a car, holiday or to renovate your kitchen but were turned down by the bank because your credit history isn’t all that great.
Buddy Loans says any of the following would make an ideal candidate for guarantor: parents, daughter or son, aunt or uncle, grandparents or brother or sister, husband or wife, work colleague, a close friend or boyfriend or girlfriend.
The conditions for someone qualifying as your buddy to back a loan are that they are aged between 21 and 75 when the application is made, that they have a UK bank account and an “OK” credit score. Additionally, they will have to have a minimum income of £1,000 a month. They can be a homeowner or tenant or be someone who lives with their parents.
Problems Paying Back a Buddy Loan: Communication Is Key
If you ask someone to be your buddy for a loan, usually there’s nothing they’ll have to do because you will repay the loan with no problems — Buddy Loans says this is what happens in most cases and that the buddy will get an annual statement detailing repayments. But because the risk of lending is spread to your buddy, if you miss a payment, Buddy Loans will contact the guarantor, who may also be liable for any arrears that have built up.
Action including legal proceedings can follow in cases where neither the borrower nor the guarantor can pay back the loan. “Clearly we all want to avoid that, so we would always urge you to talk to us and keep us informed wherever there might be a problem,” says Buddy Loans.
The company says that it looks at cases individually when borrowers fall into financial difficulty. It may be possible to have a payment holiday whereby you would not make payments on dates that you are scheduled to, but that would depend on the kind of loan you have. A payment holiday may be agreed with borrowers whose salaries have dropped for a particular reason — for example, furlough, self-employed workers who have experienced a fall-off in business or people in receipt of benefits and the amount they are paid is reduced.
Interest would continue to accrue during a payment holiday, however, and so you could end up paying back more — the length of the loan and the repayments would be longer. A payment holiday should only be considered a temporary measure if you suddenly find yourself with less cash than usual because of your work or other situations. Buddy Loans says payment holidays won’t affect credit scores because they don’t report them to credit reference agencies.
If your payment holiday is over and you have to start back making instalments but can’t, because you’re in the same situation, it’s not the end of the world either. In such cases, Buddy Loans will want to look deeper into your finances, and unless you’ve already had an income and expenditure assessment done by a debt management company or other financial service and can provide it, they’ll usually ask you to give them details of what you’re currently earning as well as your outgoings.
They may be able to advise on something you haven’t seen, like spending unnecessarily on particular items or services, which would be stopped or pared back so that you can meet your Buddy Loan instalment commitments. Sometimes, it takes an extra set of eyes to get a clearer picture of your finances — it may not have occurred to you that you have subscriptions that you don’t really need or pay above the odds for services you can get at a better price elsewhere, freeing up your cash to pay back your Buddy Loan.
What Happens If You Pay Back Your Buddy Loan Early?
Lots of lenders have penalties if you repay a loan earlier than the terms set out. You might think it’s great for them to get their cash back ahead of time but bear in mind that they may have borrowed that money from another lender and only make money on the interest.
Buddy Loans does not charge fees for loans that are settled early, however, so if you find that you’re getting towards your last few repayment instalments and have more disposable income, you can save yourself money in interest fees by settling the remaining amount.
But if you can’t even meet upcoming repayments, the most important thing to bear in mind is that you shouldn’t struggle and stress yourself out about it — money issues can be tough to deal with and put deep strains on relationships and families. If you even think you might have a problem paying back the loan, get in touch with Buddy Loans straight away and discuss it.
Keeping the problem under wraps and hoping it will somehow resolve itself while your financial situation gets all the worse is not the solution. Being open and talking about the problem is the best way to safeguard your loan and any risks associated with it, along with your credit history and score.
The lender will appreciate your honesty with your financial situation and that you’re actively trying to do something about it instead of pushing it under the carpet and avoiding the subject. It’s the best way to stay on good terms with Buddy Loans, and together, you can work out a solution. And you won’t be placing your actual buddy in the awkward position of having to make instalments for you and repay your loan — staying on good terms with them too.
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