Any type of loan comes with serious responsibilities that can affect you for years to come and can play an important role in shaping your financial portfolio. However, there are certain advantages to choosing one type of loan over another. While you may not always have the option to decide which kind of loan you want, you should know how they differ and what makes one stand out from another.
We’re going to look at guarantor loans and the advantages they provide so you can understand why you might want to to use them.
Good for People with Poor Credit
If your credit history is the kind you don’t really want people knowing about, then a guarantor loan may be your best and only option for getting a loan. Many kinds of loans will require a credit check as a perfunctory step in the lending process. If you don’t think you could pass one of those, that your credit would show up as too low for eligibility, then you may benefit from a guarantor loan.
This type of loan usually skips the credit check on the initial borrower and goes right to the guarantor. It’s the guarantor who has to undergo intense scrutiny, because eventually the responsibility of the loan will fall to them, if you fail to repay the loan on time.
You might not be able to get the size of loan you want to or the kind of terms for a loan that you would want if you were to apply for the loan on your own. Your credit rating would simply get in the way and hinder what you are trying to get. With a guarantor loan, however, you can skip all that and place the scrutiny directly on the guarantor.
Provides a Safety Net
It may seem harsh to point out, but if you aren’t able to repay the loan on your own, then that’s okay. It’s not a big deal, as far as the lender is concerned, because they will shift their focus right over to the guarantor. Once you fail to make a payment or only make partial payment, the lender will be looking toward the guarantor for restitution.
They act as a safety net for people who are unable to repay the loan on their own or who are at risk for not fulfilling the terms of the borrowing contract. Once you fail to do your part, then you can simply fall back on the guarantor to take over for you. They may not be very happy about your inability to pay, but they shoulder the responsibility at that point, and you no longer have to.
While you may never even use the guarantor to pay off some of the loan, it’s nice to know that safety net is there. Their presence as a participant in the lending process can give you peace of mind and help you to be able to relax about the whole loan. You should still do your best to repay the loan in full and on time, but you don’t have to stress about it too much with a guarantor backing you up.
You Have Someone to Keep You in Check
With a guarantor loan, you are expected to keep the guarantor in the loop as to what is going on. The guarantor should know if you are repaying the loan on time and if you won’t be able to make a payment. That’s going to help you pay more attention to the loan and ensure that you are doing your part more than you might if the whole responsibility for the loan was on you.
This is true for most people, because they don’t want to jeopardize their relationship with the guarantor. If someone is close enough to you to be amenable to sign for the loan on your behalf, then you are probably quite close, and that’s not a relationship you want to hurt.
Having that other party involved can keep you honest, so to speak, ensuring that you make payments on time and communicate with someone about what you are doing. That kind of check and balance is good for most people, and if you have trouble repaying money you owe and repaying on time, then a guarantor loan might be appropriate for you.