Usually, it can be tricky to get a loan if you have a poor credit score, but guarantor loans are changing that. As we come out of the coronavirus crisis, many of us are reassessing our finances and considering what is important to us, which is leaving many people searching for help from credit providers.
To help you, we’re giving you everything you need to know about guarantor loans before you approach a payday loan direct lender to secure the cash you need.
What Is A Guarantor Loan?
A guarantor loan can make a good alternative to a standard personal loan, particularly if you have poor credit. With this type of loan, your loan will be co-agreed by someone with good credit who can vouch for your ability to repay. This personal will become responsible for the loan if you are unable to repay it.
As the lender has extra security from the guarantor, they may be more willing to let you borrow the cash you need, even if you have poor credit.
How Much Do Guarantor Loans Cost?
Guarantor loans aren’t for everyone because they typically carry high interest rates, with APRs ranging from around 40% to 50% on amounts from £1,000 to £12,000. This is compared to APRs of around 4% on personal loans for those with good credit scores.
However, like payday loans, guarantor loans are usually processed very quickly, which could be beneficial if you are in need of money in a hurry. But it is crucial to be aware of the fact that guarantor loans are not covered by the same restrictions as payday loans, so borrowers could end up paying back more than twice the initial loan amount, once the interest has been added.
Who Can Be Your Guarantor?
You can ask anyone you trust to be your guarantor, such as a close friend or family member, but unfortunately, not your husband or wife. As you can understand, asking someone to be your guarantor is quite a big ask, so it’s important that you feel comfortable discussing your finances with this person. After all, it’s highly likely that they will want to be confident in your ability to repay.
The guarantor requirements tend to vary by lender, but generally, a guarantor must:
- Be over the age of 18
- Be a homeowner
- Have a good credit history
Make sure that you check your chosen lender’s criteria before applying, just to make sure that your guarantor fits the bill.
Could You Improve Your Credit Score To Get Better Rates?
If you are coming out of the coronavirus crisis with a poor credit score, you may want to think about boosting your rating before applying for any loans. As guarantor loans usually come with higher interest rates, explore your options a little first. Some ways to improve your credit score include:
- Registering on the electoral roll
- Correcting any mistakes on your credit file
- Paying off existing debt
- Paying your bills on time
- Avoiding applying for too many credit providers at once
- Keeping your credit utilisation low
If you need any more advice about guarantor loans, please seek impartial help from the Money Advice Service.