If you want to get a loan for buying a new car, making improvements to your home, or going on a vacation, then one of the best possible options for you is a guarantor loan. These loans are rapidly gaining popularity among borrowers, especially those with bad credit score. As compared to traditional loans, guarantor loans are new, but have been around for quite some time now. It is a general perception that applying for a loan with a bad credit score is a waste of time, as you will most likely be turned down. However, with guarantor loans, trends are changing, and if you have a bad credit score, then you may as well head down to a guarantor lender to get your loan application approved.
What is a Guarantor Loan?
Guarantor loans are for people who have poor credit ratings and are paid over a fixed term, ranging from one year to five years. In order to get the loan approved, you need to get a signed consent from someone who will be your guarantor and will be liable to pay your debts if you are unable to do so. The guarantor acts as insurance for the creditor and is bound to the loan’s terms and conditions.
Who Can Be a Guarantor?
There are several rules and regulations in place for eligibility of a guarantor. The person must be 21 or above and must have a good credit score. They have to give their financial details to the creditor for assurance that they are monetarily stable enough to repay the loan if the debtor misses any payments. Guarantors are usually people who are close to the debtor like a family member or a friend, but that is not necessary. A guarantor can be any person who trusts you and is willing to take the risk for you.
Things to Consider Before Getting a Guarantor Loan
One of the most important things to consider when applying for a guarantor loan is the interest rate. The interest rates vary from lender to lender and some might charge a higher rate. Another thing to look at is the amount of late fees and additional charges attached to the loan, which you should know about before you and your guarantor sign the loan agreement. Moreover, it is advisable that you take offers from at least 5 to 8 lenders and choose the one offering the most reasonable deal.
The Benefits of Guarantor Loans
- One of the best options for people with poor credit ratings
- The loan can be repaid over a period of 5 years, allowing you to break down the loan amount into smaller, manageable instalments.
- The APR rate offered with guarantor loans is usually 50%, which is quite lower than 1000%+ APR of payday loans.
- This type of loan is approved and processed relatively quickly, sometimes within 24 hours.
The Downside to Guarantor Loans
The biggest downside is that finding a guarantor who is willing to take such a huge risk for you is very difficult. Most of the time, guarantors walk out of the deal after seeing the amount they would have to pay if the borrower fails to repay the loan. Moreover, some lenders tend to trick the borrowers and attach hidden charges to the loan, which increases their amount of debt. However, this can be avoided if you can thoroughly read the agreement and make sure that you understand how much you will be paying back to the lender.