Applying for a loan is something that many people consider at some point in their lifetime. There are lots of reasons why you might find yourself needing a loan, and depending on your credit history, the options available to you will be different.
For a number of loans, you have to have a good credit history in order for your application to be accepted. This is particularly true for unsecured loans which are one of the most common loans out there. However, even if you have a poor credit history, there are still some options available to you.
One of these options is a guarantor loan. Guarantor loans are very different from unsecured loans, in fact, they are more similar to secured loans. But what is a guarantor loan exactly?
In this guide, we at Sunny Loans UK will tell you all about guarantor loans to help you decide if this is the best option for you. So, if you want to find out more, keep on reading!
What is a Guarantor Loan?
Let’s jump right in and begin by taking a look at what a guarantor loan is. Well, as we have said, a guarantor loan is a type of loan that many people will apply for each day. This loan is very different from an unsecured loan, and that is because it does require safety.
Guarantor loans are commonly used by those who are struggling with loan applications due to their poor credit history. If you are someone who has a bad history with credit, then the chances of you being accepted for a regular, unsecured loan are fairly slim.
These loans come with no safety, so they are high risk for the lender. If you are considered a high-risk applicant (due to your poor credit history), then there is a good chance that your application will be rejected.
That is where guarantor loans can come in handy. Guarantor loans are different from unsecured loans because they come with security. However, they are also different to secured loans as the security doesn’t come in the form of an asset. Instead, the security comes in the form of a person.
When you apply for a guarantor loan, you will need to have another person to co-sign with you. That person will need to be in a fortunate credit position as they are your security. So, when it comes to signing the credit agreement for the loan, both you and the guarantor will need to sign it. By doing this, the guarantor is agreeing to repay your debt if a situation arises where you find yourself unable to make the agreed repayments.
So, instead of using an asset to secure your loan, that person is essentially acting as your asset as they are agreeing to take on your debts if you fall behind on payments. It is a lot more complicated than a regular loan, but an excellent option if you need a loan and have a poor credit history.
What Do You Need For A Guarantor Loan?
The process of applying for a guarantor loan is very similar to the process of applying for any loan. You should do your research into different banks and lenders, and look for reputable options before you apply. In addition to the loan application, you will also need to look for a guarantor.
As you would expect, it is best for the guarantor to have a good history with credit. You need to be able to prove that the guarantor can repay the money you borrow if you fail to do so, and so they will need to meet some requirements.
These requirements include being a homeowner or tenant, earning a salary that allows them to meet the monthly repayments, and also having a fairly decent credit history. Most of the time, the guarantor will also be a family member.
When you apply for the guarantor loan, you will also need to provide details about the guarantor. This information will be used to determine if they are fit to be the guarantor for your loan application. Once this has been determined, you will both be required to sign the credit agreement, tying you both to the loan going forward.
Pros And Cons of A Guarantor Loan
If you are somebody who has struggled with credit in the past, then there is a very good chance that you are considering a guarantor loan. For many people, these loans are the only way for them to get the money that they need based on their credit history. But before you apply for a guarantor loan, here are some pros and cons to consider.
- Higher Chance of Acceptance
- Increases the Amount You Can Borrow
- Makes Loans Accessible for Those With Poor Credit
- Improves Your Credit Score
- Helps to Improve Your Relationship With Credit
- High Interest Rates
- Putting Both Yourself and Your Guarantor At Risk
- Requires Complete Honesty Which Can Be Difficult
Does Being a Guarantor Affect Your Credit?
Finally, let’s wrap this up by taking a look at whether, or not, being a guarantor can affect your credit.
Well, as you would expect, yes, there is the potential for your guarantor to have their credit rating impacted by your behaviour. This is something that the guarantor should be aware of before they sign the credit agreement.
If you fail to make your repayments, then that debt will be taken on by the guarantor. This debt will then become their debt and as a result it will impact their credit rating. So, yes, being a guarantor can affect your credit, which is why you should think about this before becoming a guarantor.
In short, a guarantor loan is a loan that is secured by a co-signer on the credit agreement. In order to apply for a guarantor loan, you will need to have a person willing to be your guarantor. Should you fail to meet the agreed repayment terms, then it will become the responsibility of the guarantor to repay the loan.
Thanks for reading!