What Are Guarantor Loans?
Applying for credit can be a stressful endeavour for those who may have had problems in the past. This situation can be made worse by the fact that those who have financial problems will have a lot of trouble in securing a loan. Of course, the reason as to why our credit score has been affected could have been out of our control. Unfortunately, this does not make much of a difference, as the more conventional avenues will use a uniformed system to ensure their decision-making process remains the same for all applicants.
Such companies aren't doing anything wrong in this instance, it just means that your particular circumstances does not meet their lending criteria. This can, of course, be disheartening, but there are other avenues that you can consider that may be most suitable for your particular circumstances. One such option, is applying for a guarantor loan.
What Is Needed for a This Type Of Loan?
As you have undoubtedly worked out from the name, this loan requires that the applicant has access to a guarantor. This can in some ways be seen as an endorsement of the person's character, or as a backup should the applicant fall behind with payments. Either way, it is a solution that looks to aid those with a bad credit score, as long as it is used in the right way.
Before applying for any kind of loan, you need to ensure that you are in a position to be making regular payments to the loan company as per the agreement. Not taking this into account could mean a series of ramifications for you, as well as those who looked to vouch for you when you made your original application, as it could mean that they will be contacted to make payment on your behalf.
As you can imagine, this can cause a number of problems, especially if the guarantor is a family member or friend.
However, there is no need for such an occurrence as long as the right kind of discussion is held prior to making an application. For example, you should ensure that you explain what is expected from the guarantor in full. While it can be disheartening if someone does not agree to act as a guarantor, the situation will be made worse if they don't fully understand their role, especially if the worst-case scenario occurs.
Like any industry, it can be hard to tell the fact from the fiction in some instances, and the world of finance is no different. Guarantor loans can get bad press for a number of different reasons, but in many instances, these loans are merely misunderstood.
For example, it is automatically assumed that all guarantors have to hand over their bank details. While some providers may require this, others may not. As such, just looking at the different terms and conditions offered by each provider will allow you to make a decision with more clarity.
Another common myth within the financial industry is that all loans that want a guarantor generally have ludicrously high interest rates. While interest rates can differ and in some instances, be higher when compared to a high street provider, they are still low when compared to other alternatives.
For example, payday loans can have a really high APR, and although they are only short-term solutions, they can still be costly because of the excessive APR. Although you will evidently be paying back more than you initially borrowed with a loan, it is very rarely as much as people assume.
The amount that a person can borrow is also a subject matter that is often touched upon, which again can mean a series of conflicting information exists within the industry. Again, the amount on offer can differ from provider to provider, but the assumption that companies who offer loans with a guarantor only provide small amounts is incorrect. While many companies will have a maximum you can borrow, there is a larger amount on offer than if you had chosen an alternative route, such as a doorstep loan.
There Are No Fees Involved with This Loan?
Another common misconception is that a fee has to be paid upfront. While not every company can be accounted for, the majority of providers will not charge a fee application.
Some Guarantors Are Uncertain of the Ramifications
While the guarantor will need to make payments should the applicant fail to, there is a lot that is misunderstood about the role of the guarantor. While it is true the guarantor has to be a homeowner, this is not because the loan is secured against the property, but that it shows that the person who is acting as guarantor is able to budget and meet repayments.
It is also true that missing repayments can also have an effect on the guarantor's credit file, but not in the way people assume. If the applicant falls behind with payments, their credit file will be marked accordingly. The loan company will then contact the guarantor to arrange repayment, it is only if these payments are missed that affect the credit file of the guarantor.
Of course, there is a lot to commit to when acting as a guarantor, so it is vital that in-depth discussions are carried out before making a commitment.
Who Can Apply?
Generally, if you are employed and have an active bank account, then you are free to apply. However, it is worth remembering that your income and outgoings could be used to assess as to whether you will be able to afford the repayments, so it is important to ensure that you have enough income to meet the payments as per the loan agreement.
Because of the nature of this type of loan, the credit score of the actual applicant will not be used. A guarantor has to have a good credit score as they will effectively guarantee the payments should you fall short. Evidently, you should not allow for this unless the circumstances are truly out of your control, where it can be advisable to have the relevant discussions sooner rather than later.
Used in the right way, you can effectively piggy back on someone else's good credit while repairing your own, which makes it even more important that you are making the right decision in applying for this type of finance.
The world of finance is one that is continuously changing, but many lenders are more careful when it comes to borrowing money because of the many detrimental changes within the industry, but that does not mean there is not a solution out there. Companies offering guarantor loans are like any other company, in that many offer a similar service, but will come with its own pricing and terms and conditions.
It is this reason as to why carrying out some research can pay off. Even this does not have to be a time-consuming endeavour. The Internet has evolved dramatically, and you can normally find a lot of different providers with a few key strokes. There are even comparison websites that allow you to assess which loan company offers the best terms for your circumstances.
Another factor that many of us worry about when applying for a loan is knowingly having a poor credit score, which can make us feel embarrassed when we are rejected. This loan type sidesteps this obstacle by concentrating on the financial standing of the guarantor, meaning you can be confident that the loan will be approved, and you will not have to sit through yet another rejection.
The right approach to guarantor loans can offer applicants a number of benefits moving forward. Sure, opting for a loan that requires a guarantor may not be the most easier method, but it can act as a foundation in building up our credit history moving forward. This means that as long as payments have been met on time, then a number of avenues will open up, offering better interest rates and fees.
However, not considering all the factors can have a number of ramifications. The first is that you have now lost a reliable sour of income, and unfortunately you will find that there is a shortage of other options. It can also fracture relations with those who agreed to act as guarantor. As such, applying for a guarantor loan can take longer to think over than if applying using another method.
Fortunately, this type of borrowing can often be dealt within a short amount of time, so the money can be deposited sooner rather than later. Ensuring you meet the payments on time well ensure that everything goes ahead seamlessly, and has a positive effect on all those involved.
If you still have questions regarding the loan process, then why not ask the questions direct to the loan company. In most instances, you will be walked through every aspect of the application in any event, but that does not mean you cannot ask questions if you are still unsure.
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UNSECURED LOAN REPRESENTATIVE - 49.9% APRC (Variable)
REPRESENTATIVE EXAMPLE - Borrowing £4,000 over 36 months, repaying £195.16 per month, total repayable £7,025.76. Interest Rate 49.9% (Variable). Rates as of 23rd January 2017
THE ACTUAL RATE AVAILIABLE WILL DEPEND UPON YOUR CIRCUMSTANCES. PLEASE ASK FOR A PERSONAL ILLUSTRATION. A BROKER FEE OF UP TO 15% COULD BE ADDED TO YOUR LOAN.
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING, YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
WARNING: LATE REPAYMENT CAN CAUSE YOU SERIOUS MONEY PROBLEMS. FOR HELP, GO TO MONEYADVICESERVICE.CO.UK.