Guarantor loans can be incredibly helpful for many people who need to borrow money in a hurry, but there is a lot to learn about them. The more you educate yourself on guarantor loans, the better your chances will be of making the right choice. These loans aren’t for everyone, but thousands of people in the UK enjoy the benefits they offer each year.
How do Guarantor Loans Work?
A traditional loan involves one person borrowing money from a lender and paying it back by a pre-determined date. Guarantor loans involve a third party (the guarantor) who agrees to pay back the remainder of the loan amount if the borrower is not able to. There are both advantages and disadvantages for the borrower and guarantor that you should be aware of.
Advantages of Guarantor Loans
Some of the primary advantages of guarantor loans include:
• High chance of approval: If you are able to find the right person to act as your guarantor, your chances of being approved for the loan are very good. A lot of people have started applying for these loans instead of traditional bank loans because of how easy they are to get. Approval is never guaranteed, but there is a good chance of getting the money you need.
• Borrow more: With the help of a guarantor, you can borrow a lot more than you’d normally be able to. There will be a limit to how much you can borrow, depending on what your income is like.
• Improve your credit: Another huge benefit of guarantor loans is that they can help you to improve your credit rating. If you want to increase your score, make sure that you pay back the loan on time.
• Low rates: A lot of lenders will be far more likely to give you a low interest rate on your loan if you have a guarantor. The rate on your loan will partially determine how likely you are to pay back the money by the due date.
The disadvantages associated with guarantor loans include:
• Coming clean about your finances: Finding a guarantor will require you to disclose your less-than-ideal financial situation with someone you are close to. This can be a fairly difficult conversation to have, though it is necessary.
• Your credit could be damaged: If you do not make your payments on time, your credit could suffer quite a bit as a result. It is imperative that you make at least the minimum payment each month.
• You could end up with a high rate: While many people who get guarantor loans have reasonable rates, this is not always the case. Depending on the lender you choose, you could end up spending quite a bit extra with interest alone.
Managing the Risks
While there are some risks that come with getting a guarantor loan, there are certain ways to manage them. It is important that you take the time to find the right person to act as your guarantor. If you are unable to pay back the rest of your loan for any reason, you need to know that this person will step up and take responsibility. If the guarantor for your loan cannot or will not take over your payments, both of your credit could be affected.
It is also a good idea to spend some time looking for a trustworthy lender for your guarantor loan. There are lots of options to choose from for these lenders, but you need to narrow down your choices by doing some research. Look for a flexible lender who you can negotiate for the best possible terms. By doing this research you will keep the level of risk to a minimum.
Who Should Apply for a Guarantor Loan?
Some people can benefit from guarantor loans more than others. If you have bad credit that prevents you from borrowing money on your own, this is certainly an option to consider. Since you can get money fairly quickly with a guarantor loan, they are good for those who need to pay for an urgent expense. If you are approved for the loan, you should receive your funds within 24-48 hours. These loans can also be a great thing for people who want to buy a house but cannot get approved on their own.
When You Cannot Pay the Loan Back
If you end up in a situation where you are no longer making your payments on time, your lender will request that you begin catching up. It is important to be perfectly honest with the lender if you know you won’t be able to make your payments any longer. In this case the lender will contact the guarantor to ask them to step in. Keep in mind that if your credit is negatively affected by the loan, the guarantor’s credit will be too.
Things for Potential Guarantors to Consider
There are a few important things to consider before someone agrees to become a guarantor for another person’s loan. You need to keep in mind that you’ll be responsible for the person’s debt if they begin falling behind with their payments. You should only agree to become a guarantor if you absolutely trust that the person can pay the money back on time. This type of loan presents a big risk for both parties involved, and it’s important to consider all of them before proceeding.
Finding a Guarantor
If you want to get a guarantor loan, you will need to find someone who the lender will approve as the guarantor. Do you know someone who has good credit, a stable employment history and adequate income? If so, you might want to ask them if they would be willing to act as a guarantor for your loan. This is a big responsibility for the person, so be prepared for them to say no. A lender won’t approve just anyone for this role, so you might need to spend some time looking for the right person.