As the financial industry gradually evolves, credit scores have taken the forefront of the decision-making field. In other words, in order for anyone to get approved for a loan or any credit-based service, your credit will be the deciding factor as to whether you can be trusted or not. Sometimes, there are credit-holders that simply do not have the credit needed to be approved for certain type of loans, including car loans, mortgage loans, or other similar loans. In fact, even credit cards can fall into this category!
If this sounds like you, perhaps its time to consider another loan – one that you have a greater chance of approval, no matter your credit score: a guarantor loan. Whether you have heard of this type of loan or not, chances are, you are not 100% if its right for you. In this article, we are going to explore the basics of Guarantor Loans and the advantages and disadvantages that follow. By the end, you will know precisely whether this loan is suited for you.
What are Guarantor Loans?
At the core, a guarantor loan is merely an unsecured loan that an individual can open up through any financial institution. These loans are typically for credit-holders with poor or bad credit standing and unable to receive any other credit assistance. However, there is a caveat with Guarantor Loans; before any individual can be approved, they must have a third-party, whether family, friend, or a spouse, become a guarantor.
What this means is that they essentially co-sign the loan, affirming that you will pay off the entire loan by the contractual agreement. When it comes to the loan itself, if the borrower misses a payment or simply stops paying the monthly balance, given the nature of these loans, the guarantor is responsible. In other words, if they do not cover or pay the bill, their credit will be impacted as well. This is where trust and honesty come into the picture.
When it comes to the guarantor, they must satisfy a few needs of the lender in the UK, including a good credit score. Reason being, since a lender is viewing a lower credit score as risky, with a guarantor with good credit, it provides a security or cushion for the lender, ensuring that, if anything goes wrong, the guarantor will step in and help.
At the same time, if an individual with reputable credit trusts and accredits a borrower, a lender will be motivated to take the risk. Speaking of risks, let’s now dive into the advantages and disadvantages of these loans.
When it comes to guarantor loans, in comparison to other loans, there are some immense benefits, making this a feasible loan choice for some people. First and foremost, since guarantor loans require a guarantor to secure the loan – typically, guarantor loans have one of the fastest approval times. In fact, you should find out within 24 hours if you are approved. In other words, if you are faced with an emergency situation, a guarantor loan’s capital will be available readily.
If that is not a strong enough advantage, consider the flexibility that lenders offer when it comes to loan terms. Since this loan is certified by a guarantor, lenders typically give borrowers more time to pay-back the entire loan. Now, keep in mind, the longer that a loan remains opened, the more interest you will accrue. The goal should always be to pay it back as quick as possible.
Another great advantage with Guarantor loans is that there are less restrictions dictating how much money an individual can request. In other words, if you need to borrow a large sum of a money, a guarantor loan is flexible and open. You might not find this true for many other loans at this caliber.
The greatest advantage, in our opinion, of guarantor loans is the fact that, through constant monthly payment, these loans can significantly transform and individual’s credit score. So, since these loans are typically designed for people with poor credit, if they can stay-on-top of the loan the entire term, they may go from poor credit to good (or even better!).
When there are advantages, there must be some disadvantages. When it comes to guarantor loans, there are a few concerning disadvantages that must be taken into consideration. First and foremost, guarantor loans typically are packed with higher interest rates than any other type of loan on the market. It is vital to consider the interest rate prior to signing any contract as this can significantly prolong the life and cost of the loan. In light of higher interest rates and charges, Guarantor Loans can be difficult for individuals to afford later down the road. This is why the loan itself has a bad reputation as the “default loan”.
Become Aware of Guarantor Loans
We highly advise that, before you are quick to opening a guarantor loan, you take the time to become aware of all aspects of these loans. As you can see above, while there are some great benefits and advantages to these loans, there are some concerning facets to take into consideration, alongside some pretty hefty risks. Are you willing to put your spouse, family member, or friend’s credit on the line? Have you established a stable budget to handle a loan?
Keep in mind, these loans are best for people in emergency situations. If you are simply seeking a loan for a vacation or shopping, you will find the interest rates of Guarantor Loans to be debilitating. Become aware and make the best financial decision for you.