Guarantor loans are loans that are available to all people, but most of consumers that use guarantor loans are people who are not eligible for bank loans. These loans have slightly higher APR which is around 45 percent. Popularity of guarantor loans is on the constant rise and they are becoming first choice for people whose credit score prevents them from gaining bank loans.
Once you apply to guarantor loan you will have to include a person who will be your guarantor. They will be in reserve, which means that they will be only called if you fail to repay monthly payment of the loan. Apart from that they are not involved in that loan. Existence of guarantor in this kind of unsecured loan industry resulted in low APRs meaning that these loans with that kind of interest rate were well accepted by people.
You can get guarantor loan even if your credit score is bad because people like that are main users of these loans. But your guarantor must have good credit score and he must be able to repay that kind of loan without any difficulties. That is why your guarantor will be subjected to credit check.
When you pick guarantors the best choice would be a better standing friend or a member of family that is not connected to your income (like your spouse or your adult child or parent).
Taking guarantor loans and then repaying them in time will build your credit score. After some time you will be able to take bank loans due to good standing in that score. Failing to repay guarantor loans in time will not trouble the lender, because your guarantor will pay what you couldn’t, but it will reflect badly on your credit score state. Checking that state through credit report should be done before taking any kind of loan.
Tricking the lender by taking guarantor that can’t jump in when it is necessary may be smart if you can repay it by yourself, but it can be big mistake if you fail to do so. People do that because they don’t want to search for better standing guarantors and they pick first available person. But all responsibility for repayment of that loan lies on guarantor and they can end up in big problems if they are unable to repay loans that you couldn’t repay.
Be Sure Before You Apply
So, think before you apply for a loan, and do that only when you are sure that you can repay it. Don’t apply for guarantor loan if you have good standing of your credit score. Apply for it if you have really poor credit card rating and with it you can work in improving it.
There are friends, and then there are friends which you trust enough to be their guarantor. There are people who would ask you to be their guarantor and they will try to convince you in their ability to repay slightly larger loan. Once you accept and they receive money from that loan they will avoid payments and it will be on you to repay full value of the loan plus APR.