For people who want to take out a loan, it becomes difficult to make the right choice. With so many options available, it is always better to compare and weigh out your options before settling on one lender and their interest rates.
Comparing and doing your research before applying for a loan can save you a lot of money where repayments are concerned.
However, these rules apply to those who have a good credit score to begin with. In the world of borrowing and lending, credit score is everything. Without a good credit score, you cannot secure a loan with your required amount and you are most likely to get a very high interest rate.
In the case where a person has a very low credit score, they can opt out for a guarantor loan.
What is a Guarantor Loan?
Although a guarantor loan may seem like a new concept, but in truth, it has been around for a long time. Before the time of computer based credit rankings and a credit score system, the government and banks used to avail the guarantor system to provide loans to people.
A guarantor loan is an unsecured loan obtained by a person who has someone else with a better credit history and higher income, acting as the guarantor of the loan if the borrower fails to pay. The borrower can borrow anything between £1,000 to £10,000 and the loan lasts anywhere between 1 to 5 years.
A guarantor loan can really help out people who are in a bad situation with their credit score. Since the person who is acting as the guarantor has a good established credit score, the loan can be obtained with a lower interest rate.
How to Apply For a Guarantor Loan?
To apply for a guarantor loan, the borrower must be 18 years or older and must have a UK bank account which will serve as the repayment account. The other thing that the lender has to show is the ability to pay the loan back. The guarantor is as insurance, and the bank would never want it to come to the fact that the guarantor must pay, which is why the borrower will have to show that they have a regular salary and can afford to make the repayments.
Is guarantor loan the Right Choice for You?
In most cases, guarantor loans are for people who cannot get a low interest rate with a higher amount. These people are dealing with a bad credit score and are unable to get a Long Term loan on good terms.
For people who are having these problems, guarantor loans can act as a way out. If you have a bad credit score and you have successfully made the repayments after securing the loan, you can improve the credit score a lot more, allowing you to obtain future loans without the help of a guarantor.
Who can be the guarantor?
As a general rule, anyone can be your guarantor unless the person is financially linked to you, in most cases, the spouse. A family member, a friend or a colleague can act as your guarantor if they agree. The problem here is that the person who is borrowing must make sure that they make all the payments on time and in full so that no financial loss comes to the guarantor.
Although the guarantor is there so the bank can fall back on them in case you are unable to make the payment, but since the guarantor will be a person you know and share a relationship with, you must make sure, that to maintain that relationship, the guarantor does not lose any money at all.
For a Guarantor to qualify, there are a few requirements to fit the criteria.
Firstly, the guarantor should be above the age of 21, even though the lender can be of age 18.
Secondly, the Guarantor must be someone with a good credit history. The lender is allowing a loan here is because the guarantor is acting as the contingency in case the borrower fails to make payments. This is why the lender will make sure that the person acting as a guarantor has a good credit history.
Thirdly, the guarantor needs to be a homeowner in the UK. Although guarantor loans are unsecured which means the lender will not possess any assets in case of missed repayments, but it is still a requirement. Most lenders require this, but since the popularity of these loans has risen, there are loans that offer a less amount to be borrowed if the guarantor is not a homeowner.
Compare Your Options
Taking out a loan without proper exploration, research and comparison can mean you can lose a lot of money. Since Payday loans were under heavy criticism of the total APR exceeding 100%, there was a law implemented by the Financial Conduct Authority (FCA) to keep this rate to a 100% or lower.
The same laws do not apply to Guarantor loans, which is why you may end up with a bad deal that will have you paying a lot more than you initially borrowed.
For a detailed comparison of different types of loans and their interest rates, visit QuiddiCompare and see which loan suits you the best.
Remember to always have a good understanding with your guarantor about the risks that are related to becoming a guarantor. Since a guarantor can be anyone who is very close to you, you may end up losing that relationship over some missed repayments. Guarantor loans are helpful, but make it even easier for yourself and the person who is acting as your guarantor to secure the best deal that you can, by comparing all the loans available in the UK.