Are you in need of a loan but feel your credit rating is standing in the way? Many people with this dilemma choose to pursue a guarantor loan.Guarantor loans require the borrower to have a second person sign as a guarantor, instead of putting up collateral. Guarantor loans are often the only loan available for consumers with poor credit or no credit at all. They may be anywhere from $500 to $5,000 and have a term from one to five years. Although guarantors are similar to co-signers, co-signers are responsible for paying the loan from day one whereas guarantors agree to pay only if the borrower fails to pay.
Is a Guarantor Loan a Good Idea?
Determining if a guarantor loan is a good idea depends on a couple of factors. One consideration should be why you’re unable to get a traditional loan. If the reason is because of inability to make payments on time, it’s important to make sure your financial situation has changed. Guarantor loans are a good idea for an individual who has no credit but has the ability to easily repay the loan, which will help build his or her credit.
Should You Choose a Guarantor Loan or Traditional Loan?
As stated above, guarantor loans are often the loan of choice for individuals who have no credit. However, they’re also a good alternative to traditional loans because you don’t have to put up collateral. Depending on the bank, you may find better interest rates on a guarantor loan if the individual guaranteeing the loan has good credit.
What Financial State Should You Be in To Get a Guarantor Loan?
This is a question that should be asked before obtaining any type of loan. Ability to repay the loan is the single most important thing for any borrower, but it may be even more important for someone getting a guarantor loan. This is because the guarantor loan can help the individual build credit or rebuild damaged credit, and also because the guarantor will have to pay the loan if the borrower fails to do so.
Can You Handle Paying Back a Guarantor Loan?
As stated above, ability to pay back the guarantor loan should be the number one factor when applying for the loan and relying on the guarantor to sign for you. Prior to getting a guarantor loan, ask yourself the following questions.
- What circumstances led me to only being eligible for a guarantor loan? Do these conditions still exist?
- Can I make the payments on time for the entire term of the loan?
- Would I still have the ability to repay the loan if I lost my job?
Guarantor loans can be very beneficial to individuals who lack credit because they give the borrower the opportunity to prove that he or she is now credit worthy. However, as with any loan, the ability to repay as promised should be the main consideration, particularly when a second party is asked to guarantee the loan.
