If you’ve been refused credit in the past, your borrowing options are likely to be limited. The only way you can improve your credit score however, is to borrow and successfully make repayments on time. This proves that you are a responsible borrower and it would have positive effects on your credit rating. It’s also a catch 22, because if your borrowing opportunities are limited, you may be refused credit.
Guarantor loans are a viable option for those refused credit and will give your loan application extra security.
Why do I need a guarantor?
If you don’t have much of a borrowing history it’s difficult for lenders to predict how you’ll handle credit, which can in turn lead them to reject your loan application. Similarly, if you’ve borrowed money in the past and missed payments or defaulted on the loan, the risk for the lender will be much higher. With a guarantor behind you, loan companies are reassured that someone else will step in to make your payments if you struggle to make them on your own. Once your loan is fully repaid, you should start to see your credit rating improve. This means that next time you seek out credit, you’ll have a wider range of options available to you and may not need a guarantor.
What is the guarantor process?
The first step in the guarantor process is finding yourself a guarantor. This is usually a trusted friend, colleague or family member. You will be asking them to make themselves liable for paying off your loan, should you be unable to do so, for whatever reason, so you’ll need to have an open and honest discussion with each other about your financial situations.
Find a product that you are both comfortable with. Our moneymatcher is perfect for comparing credit products by taking into account your required loan amount and personal circumstances. DO NOT apply for multiple products as this may negatively affect your credit rating.
Once you have applied for a loan, both you and your guarantor will need to undergo a credit check by the lender. They will ensure that you are able to afford the repayments and also that your guarantor can afford them should you be unable to pay at any point. They’ll do this by assessing income over expenditure as well as checking previous credit history. There may be other criteria your lender requires you and your guarantor to meet, so check the terms and conditions before you apply to make sure you are eligible.
When a guarantor loan is granted, the provider transfers the money into the bank account of the guarantor. This step ensures your guarantor is in the know about the loan. It’s then up to the guarantor to pass the money on to you, either by transferring it to your bank account or withdrawing the loan as cash. Both of you will be provided with a repayment schedule and your guarantor may also receive monthly statements.
What does a guarantor need to provide for a loan?
As part of the guarantor process, your guarantor will need to provide certain details so that a credit check can be carried out. This will be to ensure that they would be able to comply with the terms of the loan (if it becomes necessary) without it causing undue hardship. They won’t ever be asked to hand over money upfront.
Choosing the best loan from our lenders and providers is simple with our moneymatcher. It takes into account your particular set of circumstances to provide you with a range of products that suit your needs.