If you’re finding it tricky to get a personal loan or business loan, because your credit history is not the best, there are a few options that may be open to you. Getting a friend or family member to be a guarantor for you is one potential path that could unlock gateways to lower interest rates or higher sums.
Well, that all sounds sweet, doesn’t it? Hold on, tiger; let’s get a few facts in line first. Because you’d be asking someone else to back your loan, they’d need to pick up the tab if you failed to make repayments.
So, there are a few more words of wisdom you ought to consider before you fire up the MoneyMatcher. Let us guide you through the shadows and shine a light upon the inner workings of guarantor loans.
What is a Guarantor Loan?
Want to expand your business but can’t get the credit you need? Maybe you’re in need of a new car to zoom you to and from work more reliably? If you’ve tried the usual avenues for a personal or business loan and they’ve come back as blanks, a guarantor loan could help you get past those hurdles. You could loan up to £10,000 over a period of one to five years, and the money is usually available quickly too.
Guarantor loans can still have quite high rates of interest compared to the best personal loan rates. However, because someone else like a friend or relative promises to step in and pay your loan if you have problems, there is less risk for the . This means that if you have a poorer credit rating you may be able to get lower interest rates or borrow over a longer period than offered elsewhere.
Guarantor loans: a summary
- Borrow up to £10K
- Pay back from 1-5 years
- Loan guaranteed by friend or family member’s assets
It’s crucial that you only take on a loan that’s affordable. After all, you don’t want to cause a rift with your guarantor because you’ve defaulted or fallen into arrears. Most, but not all guarantor loan will ask that your guarantor is a home owner. Some may even specify that they have to use their home as security for the lending, so you’ll need a lot of love and trust from the person in question.
You’ll also want to be sure that you can fulfil your end of the bargain too. If you manage your loan well, you should find that your credit rating improves, which means you shouldn’t have to rely on this type of loan in the future.
Guarantor Loan Comparison
If you do decide to head down this pathway to credit, it goes without saying that you’ll want to search out the best guarantor loan. When you use our MoneyMatcher tool, make sure you look at the total cost of a loan for easier comparison, it’ll totally help you out. Be mindful that the best rates are usually reserved for those with better credit ratings, and that advertised rates are snapped up by only 51% of successful applicants.
Criteria for Guarantor Loans
You and your guarantor are likely to have to fulfil certain criteria, so make sure you meet the mark before you complete any applications. It’s common for lenders to ask that guarantors are over the age of 21 and they can’t be your spouse. You’ll both be subject to credit checks, because like pots of gold at the ends of rainbows, loans without checks don’t exist. You can avoid having too many searches impacting on your credit files though by using soft search tools like the moneymatcher to conjure up tailored offerings.
When you’re deciding how long you’d like to pay your loan and interest back, be realistic about what’s affordable and take the time to knock up a proper monthly budget that features all your income and outgoings. That way you’ll be crystal clear about what you can afford. You don’t want to put your financial future or a friendship at risk. Remember, while a longer term should give you lower monthly payments it will likely mean paying back more overall, so you should aim to strike a balance that works for you.
Is a Guarantor Loan Right for Me?
Only you – and your potential guarantor – can decide if you’re comfortable borrowing in this way. Think hard about affordability and put a clear plan in place of how you’ll manage your repayments and money in future. If you’re thinking of borrowing to pay off other debts, we recommend you get some free advice from a specialist charity like Stepchange or the Money Advice Service.
If you’re sure that other types of borrowing aren’t open to you and you’ve already checked your credit file to make sure it’s error free, a guarantor loan might work for you.