A Guide To Guarantor Loans
Lenders normally consider a wide range of factors when processing loan applications. The first is the income of the applicant. Lenders want applicants with a reliable source of income no matter how large or how little it may be. Secondly, lenders normally run credit checks. This is to show them the credit history of the applicant.
Borrowers who have previously defaulted on loans, filed for bankruptcy or missed payments on other loans are likely to default on the loan, so they may have their loan application rejected or the interest rate adjusted upwards to cover the added risk. Other things that lenders normally check include; the phone number, email address, physical address and full name of the applicant.
If everything checks out, the loan can be approved. If you have a bad credit history, lenders may not be willing to approve your application because you have previously proven to be unreliable or irresponsible when it comes to managing your money. That is where guarantor loans come in.
What is a Guarantor Loan?
This is an unsecured loan meant for consumers with bad credit. As the name suggests, there must be a guarantor for the loan to be approved. This must be an adult with a regular source of income and a decent credit score. The guarantor will co-sign the loan and accept liability in case you default. As you can see, this loan is based on trust.
The guarantor must trust you completely because they will be required to service the loan in case you default. The best guarantors are usually relatives, friends and co-workers. These are people who know everything about you and trust you. They can accept liability because they know where to find you at any given time.
Guarantor loans normally come with repayment periods ranging from 1 to 5 years. Loan amounts normally range from £500 to £15,000, depending on the lender. The loan requirements may differ from one lender to the next as some lenders require the guarantor to be a homeowner while others do not have this requirement. This means that you will need to do some research to find the right lender before submitting your loan application.
Why Choose Guarantor Loans?
i) You Have Zero or Poor Credit Score
If you have a poor credit rating or no credit history whatsoever, getting a loan can be quite a challenge. This is because lenders normally rely on credit ratings to make credit decisions. By providing a guarantor, the lender will rely on the credit history of the guarantor to approve your loan application, thereby making it possible for you to borrow with a poor credit score or zero credit history.
ii) Borrow Larger Sums
When you want to borrow a bigger loan than your salary can support, you will have two options. The first is to provide security for the loan. The second option is to provide a guarantor who will be liable for the loan in case you default. The latter is the best option because you may not have have any conventional security to use as collateral.
iii) Get a Cheaper Loan
Competition in the credit industry is always on the rise. This is because new players are always entering the market. This has brought down the cost of borrowing significantly. However, a poor credit score will still push up the interest rates that lenders will quote for their loans. If you have been receiving unreasonably high interest rate quotes from lenders, you can use a guarantor to get a cheaper guarantor loan. This is because having a guarantor reduces your risk, so lenders will be more inclined to quote a much lower rate of interest.
It is important to note that you can use guarantor loans to build your credit. If you have a low credit score, borrowing secured loans, unsecured loans, bridging loans, home improvement loans, car loans, payday loans, doorstep loans or getting low interest credit cards will become quite a challenge. You may have to make due with high interest short term loans, debt consolidation loans and bad credit loans. The good news is that you can easily take out a guarantor loan and pay it successfully to boost your credit rating.