Getting a loan nowadays can often be a difficult task, but never impossible. For those who have had problems with getting credit, or previous credit history problems, there are other options that will allow you to access financial products such as loans and credit cards.
For example, a secured credit card can act as a standard card, but you need to provide a deposit as security which is returned when the card becomes unsecured. A guarantor loan is an excellent option for those who have problems with getting loans in the past.
This brief guide will explain what a guarantor loan is and how it works.
What is a guarantor loan?
A guarantor loan is an unsecured loan that requires a second person to act as the guarantor for the borrower. This concept is quite common for both landlords and mortgages and almost anyone who is not financially associated with you (a spouse for example) can act as a guarantor. They will need to be over 21 years old, with an excellent credit history and a UK home owner. The guarantor will co-sign the agreement to say that if the borrower somehow defaults on payments, they will agree to repay the debt on the borrower’s behalf.
This is an ideal solution for people who have bad credit history and you can borrow anything from £1,000 to £7,500. This is a flexible form of finance that relies on the trust that you, as the borrower, will pay the loan back.
What happens if I default on the loan?
As mentioned above, if you happen to default on the loan, the guarantor has to cover the payment, plus any interest accumulated. However, it can help you in building an excellent credit history. It can encourage you to pay off the loan yourself in order to prevent a default can cause your guarantor to pay it instead.
Is a guarantor loan suitable for me?
If you have had problems with credit in the past and are looking to start rebuilding, then a guarantor loan is ideal for you. However, if you are prone to missing payments, this will cause your guarantor to pay in your stead and this it is best to avoid. Not only will it further damage your credit history, but the lender may likely take both you and your guarantor to court. So if you do take out a loan, it is in your best interest to ensure you manage the payments properly. The guarantor will go through the standard credit checks that would come with a usual loan and the interest will more than likely be around 50 per cent APR. While it is high, this is considered the lowest form of APR for any loan and reflects the risk undertaken by the lender.
While a guarantor loan is not a viable option for everyone, it is still advised to shop around for the best deals. If you are unsure of where to look, financial specialists can put you in touch with a lender who can provide a guarantor loan that will suit your circumstances and your credit history.
By Harry Price
Harry Price is a freelance writer who lives on the south coast with his wife and 3 dogs. His latest favourite past time is rockclimbing along the many rock faces in his area.