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Borrowers with low credit scores will often have a hard time getting approved for a loan. Since lenders place considerable weight on credit scores, a bad credit rating can usually thwart your chances of getting the funds that you need.
What are Guarantor Loans and How It Helps
This doesn’t mean, however, that you’ll just have to give up on securing a loan. One way for you to be considered a good potential borrower is to present a guarantor. Since your credit score is not up to par, you can find somebody else who has a good credit score to guarantee the loan. Lenders will be happy to accommodate your loan request when there is somebody that can give them assurance that the loan will be repaid.
Credit scores and loan approvals
A credit score is a combination of your credit history, your past debts, and how well you have managed these debts among others. Your credit score will definitely be low if you have missed payments or defaulted loans in the past. So, when lenders see this, they’ll generally have the impression that you might not be trustworthy enough to pay your loan back.
Guarantors and how they help
When you present a guarantor, there is somebody who will have your back in the event that you cannot pay the loan back. Guarantors need to have a sound credit score and should have a good and stable income before they are approved. They will also need to agree to take on the loan on your behalf if you ever come to a point when you may no longer approve the repayments.
Most guarantors are family members of the borrower. They could be friends too. Considering the weight of the responsibility that he is about to take on, it matters that you choose a guarantor that you know who can be trusted with matters concerning your finances. It is important that they understand the implication of guaranteeing the loan. At the same time, see to it that you will be able to afford the amount you’re taking out. Nothing ruins relationships more than failing to fulfil your financial responsibility.
For people who are having a hard time getting granted a loan due to bad credit, a guarantor loan can be a good solution. A type of unsecured loan, it requires another person that will guarantee the loan. This person should meet the necessary credit score requirements and at the same time, will have to agree to pay the loan for you if you ended up defaulting on the repayments.
Everything you need to know about guarantor loans
Most of the time, lenders will allow you to borrow between £1,000 and £15,000. The terms can be between one and seven years. These days, landlords will usually ask for mortgage companies and landlords.
Who can be a guarantor?
Anybody can be a guarantor, provided that they are linked to you financially. They could be a family member, a spouse, a relative, or even a co-worker. Guarantors also need to be over 21 years old and must have a good credit history. They will need to be a homeowner too. Guarantors should expect credit checks and they’ll be expected to provide bank details, proof of ID, and bank statements among others.
How much will the loan cost?
Interest on guarantor loans would depend on your overall creditworthiness. Representative APR varies from one lender to the next. Most of the time, this could range from 39.9% to 59.9%. Be aware though that the final APR you will get can either be lower or higher than this range.
Emphasis needs to be made upon the guarantor of the weight of the responsibility that he will be taking on in the event that you won’t be able to pay the loan back. As a guarantor, he is legally bound by the loan agreement in which he will have to take responsibility for the payment if you will default. The lender will require the guarantor to pay up not just the loan principal but the interests as well.
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