When applying for any unsecured loan you must remember that it comes with a degree of financial responsibility that can affect you in the future. However there are different type of loans now available that suit individuals needs better than they ever have before. Whilst the final decision may not always be down to you, it is worth knowing how and why they differ.
Guarantor loans are one such category of unsecured loans. Created to assist those with a less than perfect credit score to ensure that there are still financial options available. So if you have a low or poor credit score and feel that you may not pass the obligatory lender credit check, then a guarantor loan could be the perfect financial solution for you. Obviously with any Guarantor loan you need someone to act as the guarantor, and it must be someone who has a relatively good credit rating. The lenders usually skip the credit check on the initial borrower and credit checks the guarantor. Anyone who is 18 or over can act as a Guarantor for a Guarantor loan provided they are not financially linked to the applicant. Sometimes a Guarantor can be a wife or partner as long as they are ‘financially independent from the borrower’.
You can borrow anything up to £7,500 over a year or up to five years. Many guarantor loans don’t have arrangement fees or charges. However, the interest rates are higher than they would be if you didn’t need a guarantor. They vary depending on the company you borrow from but are usually around 40-50% APR. While that may sound high it’s a lot lower than payday loans or other high-interest loans which sometimes run into the 1000%+APR.
You’ll probably be able to borrow more on a guarantor loan than you would if you went for any of the other types of credit aimed at people with poor credit histories. Another advantage is that by taking on one of these loans, as long as you keep making the repayments on time, you can rebuild your credit history and may become able to borrow from mainstream lenders in future.
Therefore the guarantor provides a safety net for both the borrower and the lender. Should you run into financial difficulties, then it is the guarantor that will step in to assist and ensure the loan is repaid. Obviously if it is someone close to you, then it is even more important that you ensure you repay on time as you do not want to jeopardize that relationship. It is very important to keep the guarantor updated at all times and ensure they know that you are making the repayments on time. Used wisely and correctly therefore a guarantor loan is an excellent financial solution for those with poorer credit.