With credit harder to come by and life getting more expensive, it can be tricky to get help to cover some of life’s costs. In previous years you could walk into a bank and come away with a short-term loan even if you didn’t have the cleanest of credit records but after the recession and crisis after crisis, banks have just stopped lending to anyone. If someone is looking for a loan with bad credit, then this is where a guarantor loan can come in handy.
Guarantor loans use another person, normally a family member, to gain unsecure credit for someone who might otherwise fail a credit check. They work in a similar way to having a guarantor on your mortgage or house rental agreement. They are basically assuring the credit company that repayments will be paid, if not by the person taking the loan then by the guarantor – both parties are held responsible for the payments.
Pros of this kind of arrangement means that obviously the person who needs the credit can obtain it, they can then purchase what they need with it whether it be a new car, a washing machine or a boiler. The credit issuers are safe in the knowledge that they will still get their money back – by one of the named party members. This kind of borrowing tends to be cheaper than payday loan or cheque cashing companies. Guarantor loans are not secured against any property so you and your guarantor would not be at risk from losing your home should you fail to meet payments. This kind of arrangement can also improve the credit rating of the person who is borrowing the money.
Cons to a guarantor loan can include that they can be difficult to set up. Finding someone who is willing to back you up should you fail to meet the payments isn’t always easy. Most of the time it will have to be a family member or someone who really trusts you. Some guarantor loans require the guarantor to provide an affordability check which, with their own outgoings, might mean they don’t meet the requirements to help. The guarantor needs to have a good credit rating themselves, a bad one risks the loan being turned down. This type of agreement can also effect relationships if payment arrangements aren’t kept.
Taking out a loan, no matter what kind should always be a last resort. The money should always be for something you NEED rather than want and alternative sources should be exhausted before; asking friends and family, selling unwanted items, asking for an advance at work. If you have to go down the loan route then ensure you can afford the repayments and always borrow from a reputable source; banks, building societies or anywhere regulated by the FSA.