What to consider when thinking about being a guarantor against a guarantor loan
In this blog we will be looking at some of the things to be considered when you are thinking about being a guarantor for a friend or relative with their guarantor loan application.
Many of us will know someone that has fallen on difficult financial times. That person may even have been you, giving you first-hand knowledge of how it feels and the effects it has on your daily life. Either way, there is a good chance that you can see the person in question struggling but unless you hand them the cash they need, there is little you can do to aid the situation. That is where guarantor loans become a viable option that makes life that little bit easier for both parties.
If the person requiring the loan is considering a guarantor loan then the chances are that they have a bad credit rating. This means that they are not in a position to go directly to the high street banks or mainstream lenders. It does not necessarily mean that the person is not capable of repaying the loan, it just means that they may have defaulted on a previous credit agreement, or potentially may have never had enough credit to develop a healthy credit history and until they prove themselves as financially trustworthy that they will never be able to gain the credit required.
So what can you do to help?
You can help by agreeing to become a guarantor for them against a guarantor loan. This will allow the person requiring credit to primarily gain access to the required funds. It also helps them to build, or rebuild, a positive credit history by making repayments at the agreed times. It will take time but it is a step in the right direction.
It also allows you to essentially help them get their hands on the funds without having to pay the full amount out to them directly, for it may be the case that you as a guarantor can afford the repayments should they default on the agreement but do have the full amount sat there in your bank account.
Of course in order to get the loan agreed you will both have to pass the affordability checks to ensure both parties can afford to repay the loan and continue to pay for daily life as well.
The bottom line here is trust. The person acting as guarantor will have to have complete trust in the person borrowing the money, for as it is made abundantly clear, if the loan applicant defaults on the loan, the guarantor will have to make the repayments on the loan applicant’s behalf.
So in order to have to best chance of your friend or relative being accepted for a guarantor loan it is best to have as much information as possible prior to helping with the application.