The UK credit industry has been hit with a heavy raft of regulations and many experts agree that this has caused and will continue to trigger a mass exodus of credit businesses from UK shores. Another implication of the growing instability of the UK credit industry is the influx of new ideas to fill up space created by the exit of traditional forms of lending. One such alternative is GLO, which stands for guarantor loan option – a new way for people who struggle to get traditional loans to obtain credit.
GLO – where did they come from?
GLO is a new innovation of an old concept – the age-old idea of the guarantor; new wine in old bottles if you like! The premise is that a loan applicant gets someone they know and who trusts them to “back” their application for credit with a promise that if the applicant defaults, they will step in to make any repayments.
GLO loans – who are they aimed at and how do these new loans work?
These loans are aimed at people who find it hard to get more traditional forms of credit. This niche of people is ever-growing in the UK, with regulations continuing to create an ever-widening group of people who no longer qualify for traditional forms of credit, including online services like the well-publicised Wonga fast loans. These regulations have hit the industry hard, and have created a vicious circle of forcing lenders in the payday lending sector to cut jobs, hike the cost of short-term credit and refuse credit to some who would have qualified for it prior to the imposition of regulations.
With GLO, there are a few very important variations on the old concept of seeking a guarantor to underwrite a loan. GLO loans are different in that where a default occurs an immediate communication begins with the guarantor, who is asked to supply their payment details. Previously, the guarantor would really only be approached when it became clear that the original recipient of the loan had defaulted and was unable to make the repayments they had promised.
The loan application is informed through dialogue with both the applicant and the proposed guarantor – a deviation from the traditional focus which was on the loan applicant.
Additionally these new forms of credit providers have been designed so that they can “repair” damaged credit ratings. Every time a person makes a repayment, this is logged by a credit reference agency immediately so the recipient of the loan can gradually build up their credit profile again and get a batter credit rating.