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If you are having difficulty obtaining a personal loan due to poor or limited credit, you may want to ask someone to act as guarantor for the debt.
This way, you can apply for a guarantor loan, and a second person agrees to be responsible for the debt if you can’t keep up with the payments.
Here’s what you need to know about secured loans.
What is a guarantor loan?
A guarantor loan is a type of unsecured personal loan that allows you to borrow money if you do not have, have little, or have poor credit history. The main difference between these and other forms of loan is that they require a third party, the guarantor, to agree to step in and make repayments if you are unable to do so.
Secured loans generally have higher annual percentage rates (APRs) than standard personal loans, as they are aimed at borrowers with tarnished credit histories. But like any loan, the rate you receive will depend on your personal circumstances.
Smaller specialty lenders tend to offer secured loans and are typically offered online by providers. You can find the best personal loans for you using a comparison service. This will give you an overview of the market and the type of rates you can get.
How much can you borrow?
The amount you can borrow will depend on a number of factors, including your personal circumstances, reasons for obtaining the loan, your credit history, and your overall financial situation (including current debts).
They may offer you less than what you originally asked for, depending on how much the lender thinks you and your guarantor can afford. But typically, loan applications range from £ 1,000 to £ 15,000.
What can a guarantor loan be used for?
As with personal loans, a secured loan can be used for a variety of reasons, including home improvements or the purchase of a car. As always, it is wise to consider your reasons for taking on debt, especially if you may have difficulty meeting payments. In this case, you’d be better off seeking help managing your finances.
While you won’t need a good or excellent credit rating to get a guarantor loan, you will need to show that you can pay repayments as part of your expenses. So, consider what you can actually afford each month before applying for a loan.
Also, think about the pros and cons of this type of loan agreement before applying for it:
Pros
If you have a low credit score and need a loan for a particular reason, secured loans may be the right option for you.
You may be able to borrow more money than with a standard unsecured personal loan, depending on your personal situation.
As long as you make your payments on time, obtaining a loan can offer you the opportunity to improve a poor credit history.
Cons
You can pay a higher interest rate for a guarantor loan than for a standard unsecured loan.
Your relationship with the guarantor may be affected if you fail to make payments and he takes responsibility for your debt and payments.
If you sign up as a guarantor and take responsibility for the debt, it could seriously affect your financial situation. Especially if you also have a hard time meeting payments.
Who is the guarantor?
A guarantor is usually someone over the age of 21 and close to you, such as a family member or friend with good credit and a UK bank account. He / she must be in a strong enough financial position to meet repayments, if necessary. This will be evaluated during the application process.
What are the risks of being a guarantor?
The guarantor is willing to enter into a legally binding relationship to honor refunds on your behalf if you fail to do so, and you must understand the responsibilities and risks involved.
It is important to take the implications of being a guarantor seriously, as there are potential consequences if you become liable for repayments and overall debt. What if your situation changes or you lose your job? If you were financially strapped, would you have a hard time meeting repayments? Your credit score could be affected and you could even face legal proceedings from the original lender to obtain debt.
You should only sign up to be a guarantor if you are confident that you are comfortable with the agreement and its implications for you and your relationship with the borrower.
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