Having a not so perfect credit history should not stop you from getting a loan. Although you may be turned away from many mainstream lenders, there are options available for those whose credit check is holding them back.
One such option is a guarantor loan, which is specifically designed for those who are struggling to gain a loan elsewhere. But what is a guarantor loan? And what are the various benefits for opting for this type of loan?
What is a Guarantor Loan?
A guarantor loan is an unsecured personal loan, with the difference being that the borrower is guaranteed by another person. This extra party is a backup in case the borrower cannot repay the loan. The guarantor will not be directly involved in the loan repayment until the borrower fails to make the payment. These type of loans are ideal for those struggling to gain acceptance elsewhere, due to a bad credit history or other financial issues.
Your guarantor can be anyone from a relative to a friend or work colleague, the only things they need is a good credit history, to be aged between 21 and 70 and to be able to afford the repayments, should they need to.
Some lenders will also require the guarantor to be a homeowner, for an extra sense of security. Once accepted, the loan will be paid to the guarantor, who can then decide how or when to pass the money onto the borrower. The repayments of such loans can last anywhere from one year to seven years, and the borrowing amount is typically between £1,000 and £15,000.
The Benefits of Guarantor Loans
Guarantor loans are often flexible and can be tailored to the specific needs of the borrower. You can select the sum of money you would like to borrow and also the length of the repayment period. With this, they are also more affordable when compared with higher interest credit loans. Typically, guarantor loan interest rates can be anywhere between 39.9% to 59.9% (APR representative), but this will depend on the lender.
As well as this, most guarantor loans are at a fixed rate, which means the amount of interest paid will not change for the entire repayment period. This can offer a sense of reassurance, as you will know exactly how much to pay each month. This also helps you the organise a financial plan so you can plan out the repayments for each month.
Guarantor loans are also unsecured, which means if repayment fails, your home will not be repossessed. Instead, the guarantor will be contacted to take over the monthly payments. Despite many lenders requiring the guarantor to be a homeowner, this is only for a sense of security in knowing they can make repayments. The guarantor’s home is not at risk of repossession either unless listed as a security possession by the guarantor – but this is unwise as the loan is worth less than the property.
Taking out a guarantor loan and subsequently paying it off can help to build up your credit score, making it easier to gain other types of loans such as a mortgage. Making payments in time will demonstrate to other lenders that you are a secure customer. Also, overpayments can be made on most of these loans, which will reduce the length of repayments. This in turn will reduce the total amount of money paid on the loan in terms of interest. Usually, lenders allow overpayments of up to three times the monthly repayment amount.
Guarantor loans are a great way for those with a bad credit history to start to rebuild their credit score. Gaining a guarantor, you trust, and who trusts you in return, is extremely important. Once accepted, these loans can help to pay off any other debt as well as setting you on the right track for your financial future.