If you have never borrowed money before but need to get a loan it can be a difficult process
. Banks and lenders will not have any payment history on you and will not be able to assess you properly making you high risk to them. Banks are being more vigilant than ever before and are not lending money as easily. It can be just as difficult for people with bad credit however there are solutions and a guarantor loan is one of them.
So how does a guarantor loan work? The applicant looking to take out the loan will need to find somebody to act as a guarantor for them. The guarantor has to have a good credit history. It is possible for anyone to act as guarantor for the loan, however people normally ask relatives or close friends to help.
The guarantor will need to vouch for the applicant, so they must make sure they fully understand the role they are undertaking before signing on the dotted line. The good thing about the guarantor loan is that the applicant can actually restore their bad credit by using their guarantor's good credit to better their own, provided they keep up with all the payments.
It is a huge risk for the guarantor to act as a third party for this loan especially if they are not close to the applicant, that is why the guarantor is normally a relative or close friend. If the borrower does default on the payments, the guarantor's assets should be safe because it is an unsecured loan. If money is not being recieved on the loan the creditor could make the decision to go to court to turn the unsecured loan into a secured loan and recover the money lost, this would only happen if no other arrangements could be made between both parties.
Although the guarantor loan is an unsecured loan, the interest rate is not much higher than other unsecured loans, this is contrary to popular belief. The people who are more likely to opt for this loan are individuals who have no credit history or a bad credit score. The interest rate on this loan is based on the guarantors credit standing not the applicant that is applying for the loan.
Closing Comments
Guarantor loans are great for people who need to restore their credit or to get a credit score behind them. When looking to obtain and enjoy the benefits a guarantor loan can provide, it is essential to make sure you can afford the repayments on the loan before committing to anything. With any type of loan it is always wise to shop around for the best deals.
