About guarantor loans
Borrowers who have a bad credit score can find it difficult to secure traditional personal lending. This is because lenders will use a borrower’s credit score to assess the size of the risk that a particular borrower will not be able to make their repayments.
However, borrowers who cannot secure a traditional personal loan may find they are able to get a guarantor loan. Guarantor loans differ from personal loans in that the borrower is required to use a third party such as a friend or family member to agree to be their guarantor for the loan.
This means that the guarantor becomes for paying off the dept if the person who has taken out the loan misses one of their repayments. If the guarantor then fails to make the repayment it can have serious complications for both parties.
The Annual Percentage Rate (APR) of interest offered by a guarantor loan will vary by lender, the loan amount, period and other factors. Despite the added level of security to the lender on guarantor loans they do still tend to have higher Annual Percentage Rates than you would find with personal loans. However, a borrower may be able to borrow more with a guarantor loan than they would with other bad credit loan products due to the guarantor.
General rules for who can be a guarantor
- Be aged at least 21 years old
- Have a good credit score
- Have a permanent UK address
- Often Lenders require them to be a UK homeowner
It is vital that a guarantor understands the full gravity of the risk they are taking on by accepting the role.
Before you take out a guarantor loan
You might want to think about alternatives to a bad credit loan before you commit to one. If you have any savings it could be better to use them instead. This is because the interest rates you might be earning on your savings are likely going to be less than the interest you would be charged on a loan.
It is also important to consider if you are thinking of taking out a loan to consolidate debt that spreading your payments over a longer term means you may ultimately be paying more overall than with your existing arrangements, even if the interest rate on this new loan is less than the rates you have at the moment.
Before taking out any kind of finance it can be a good idea to shop around different products to try and find the best deal available to you. using a soft credit check may help you find out exactly which products might be available to you.