Like most things that don’t affect your day to day life, your credit rating is something that you only think about when it’s going to impact a financial decision. This is why you need to make sure that your rating is the very best that it can be, so it doesn’t have a negative impact when it comes to securing credit or a mortgage deal.
If you do have a bad credit rating, then many things can help improve it. And, at some point, you may ask yourself the question of “can a guarantor loan improve my credit rating?”. The answer is yes. Guarantor loans can be a great way to get your credit rating back into good health.
What Exactly Is a Loan Guarantor?
A loan guarantor is somebody who agrees to pay back a loan for somebody else if in the event that the borrower cannot make the repayments themselves. The loan guarantor is legally obliged to make these repayments when the loan company demands them to do so. This agreement will have been agreed in writing prior to the company granting the loan to the borrower.
By becoming a guarantor, you are taking on a very big financial responsibility but, it is a great thing to do for someone who is in need and can be rewarding to know you have helped them. However, it is still a significant risk because a guarantor becomes liable if the person they are supporting cannot make the repayments in full or when they are supposed to.
Guarantor loans can also have positive effects on the guarantor’s credit rating as well because if they are required to make a repayment when the borrower cannot then, it will show that the account is actively making payments on time.
The Majority of People Qualify for A Guarantor Loan
Guarantor loans are great, and you don’t need a good credit rating to be able to secure an affordable rate loan either. All you need is somebody willing to be your guarantor and to vouch for you on your behalf. This provides the company who is lending to you a greater sense of security which means that you are far more likely to accepted for the loan that you apply for.
Not only does a guarantor loan provide you with the financial assistance that you need at the time. It can also give you the very best chance at improving your credit rating for the long term.
Who Can Act as a Guarantor?
Anyone can act as a guarantor for somebody on the condition that they are not financially linked with the person who is borrowing the money. A guarantor could be anyone from a friend to a close family member or even somebody that you work with each day.
To become a guarantor, you need to have a good credit rating and history, be over 21 years old and be a property owner. A credit check on a potential guarantor is carried out in the exact same way that a borrower is checked. Guarantors need to provide a history of bank statements, bank account details and proof of identification.
The Things That You Should Consider Before Agreeing to Be A Guarantor
Like previously mentioned, becoming a guarantor can be financially risky but also rewarding. However, there are a few things that you should ask yourself first.
- Is the person who is borrowing the money responsible enough to have the loan?
- What is their reason for needing a guarantor?
- Do you have a poor credit history?
- Are they going to have problems with making the repayments on the loan?
- Is getting a loan the right decision for them? Or are they able to save up the money instead?
- Are you able to make the repayments on their behalf should they not be able to?
- What would you list as security?
- Are you willing to risk a repossession if the borrower or you cannot make the payments?
Becoming a Guarantor? Make Sure you Get the Documentation
When becoming a guarantor, the borrower’s lender must provide you with the credit agreement that outlines the repayment schedule and a copy of the guarantee contract otherwise the loan agreement cannot be enforced. If you think the contract that has been presented to you is oppressive, then you allowed to apply to the issuing court to have the agreement changed or amended.
What If There Is a Default on The Loan?
If the borrower cannot keep up with the loan repayments, then the lender will go to the guarantor and ask them for the required amount. They will consistently send reminders asking for the owed amount plus any interest, and can legally take the borrower and their guarantor to court if no payment gets made.