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Guarantor Loans: Explained in Layman’s Term
If your account history isn’t as good as you’d like and you’re looking forward to take out a loan, you may be thinking if a guarantor loan is the answer. But what are they and how do they work? In this blog, we take a closer look at guarantor loans no age limit and what you need to know when you take one out.
A guarantor loan isn’t a joint credit agreement – like a mortgage you take out together – but it’s worth treating it in a similar way. That’s because if you don’t keep up with your repayments, the individual acting as guarantor is responsible to take over. It’s vitally important both you and your guarantor are clear about this before you sign the agreement. If you default on the loan and then your guarantor can’t afford to take over, the lender can take legal action against both of you – even though the guarantor hasn’t actually received a penny of the loan you took out. So, now you know the main risk, how exactly does a guarantor loan work?
Skip the credit check?
Guarantor loans can come up as an option for borrowers with a less-than-perfect credit history. If you have taken out a loan, credit card, store card or any other form of credit in the past and then been late making your payments – or missed them altogether – this leaves a mark on your credit history. When you apply for new credit, lenders can check your credit history and if they see this, they may choose to turn down your application on the ground that you don’t look like a reliable borrower. With a guarantor loan, it can be permissible to bypass this credit check as the lender has the security of the guarantor to fall back on. So, if you don’t make the payments on the loan they can chase the guarantor for the money instead.
Who can be a guarantor for unsecured loans?
You can call for a family member, friend or colleague to guarantee your loan – the choice is yours. However, they will be credit checked by the lender, so you’ll need to be sure they have a good credit history. And you can’t ask your spouse, as it’s likely that you’ll already have financial ties with them. While you can ask almost anyone to be your guarantor, that doesn’t mean you should. Instead, you should thoroughly consider who has a close enough relationship to you to be ready to shoulder the burden of your loan repayments if you can’t. Keep in mind that the interest charged for a guarantor loan can be quite a bit higher than that on a personal loan, so the payments your guarantor would probably have to make could be substantial. Before you sign up, make sure you are both fully informed of the terms and conditions. And keep in mind that if you default on your loan and your guarantor is required to take over, not only will your credit history be affected but your relationship could be too.
Have you been asked to be a guarantor?
Maybe you’re not thinking of taking out a guarantor loan but you’ve been asked to act as guarantor on one for somebody you know. As we’ve said, this is a big responsibility and you need to be certain you can afford the repayments just in case you have to take over. A guarantor loan taken out by somebody else will not show up on your credit history presenting the borrower makes their repayments on time. However, if they default, this could show up, and if the lender takes any legal action against them, this could leave a mark too. And of course, if you are then unfit to take over doing the payments and the lender takes action against you, such as applying for a county court judgement, this too would show up on your credit history. This could make it hard for you to borrow in the future.
What are the options?
It’s right to be wary of taking out a guarantor loan, but it can be a fit solution for some borrowers. There are options available, though. A personal loan provider who specializes in borrowers with a poor credit history could be one option.
Payday loans could also be an option. They have received a fair bit of negative advertising in the past few years, but the interest these lenders can charge has been capped. Some payday lenders also allow you to pay off the debt in installments, which can make this type of loan easier to manage than was once the case. However, the interest charged on these loans is still relatively costly.
Another choice is borrowing the money from a friend or family member. You might come to an agreement together, and you could even draw up a repayment plan and then both sign it in front of a solicitor to make things more clear.
What if I can’t keep up my repayments?
If you can’t keep up with your repayments you must contact your moneylender immediately and advise your struggling with the monthly installments some companies will adjust your monthly installments to reflect what you can afford to pay back on a monthly basis please note that this can also extend your term of the agreement and probably the amount of interest that you end up paying back. You’re never advised to just stop paying your agreement as this may result in interest being charged on the agreement and missed payments showing on your file this could make obtaining further down the line a lot more difficult.
What do i do next?
Next is the fun bit you need to click on the apply button and fill out our simple online form designed to make sure the whole application as smooth and pain free as possible. The whole application process from start to finished shouldnt take you longer that 3 minutes its as simple as you can get.
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