Getting the right finance can be especially difficult if your credit history is poor or non-existent. If you’ve got financial goals this year, whether it’s to own your own property or buy a new car, you’ll want to ensure you make smart choices along the way. This can be easier said than done of course, with it not always obvious when a good option makes itself clear. Additionally, it can be unclear what type of finance product to go with; do you apply for a form of personal loan, credit card or a secured loan? It can be confusing if you’re not sure what to look out for and the finer details involved. So, what are some of the best finance options you can find to help you this year?
Among the options you’ll find are guarantor loans, where you can borrow money with the help of someone co-signing your agreement. This can help you get access to much higher amounts of borrowing with the power of 2; a joint partnership for a loan. Now there are various different ways this can be done and many different permutations of what a lender would require for this type of loan. Maybe you’ve never come across these types of loan before or aren’t sure exactly how they work and why they can be a great option. In the UK last year, guarantor loans accounted for £1 billion of lending in total, with these types of loan an increasingly common option. If done in the right way, a guarantor loan can be a rewarding option, but like any form of loan, there are potential pitfalls to avoid.
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Compare What You Find
With many borrowers choosing a guarantor loan, there are many lenders to match who can provide them. Because of this, you’ll need to ensure you’re finding the right ones who can offer the best guarantor loans that work for your circumstances. The last thing you want to do is to choose one that charges too much interest and doesn’t provide the most preferential terms. The most effective way to find and compare the guarantor loans available is by using an online comparison tool. All you will need to do is enter in the value of the loan you want and how long you want it for, and you’ll then be shown what is available and the various conditions you’ll need to meet. This will save you time and effort, taking just a few clicks to show you what’s available. The alternative would be to manually search for lenders who offer guarantor loans, but it may take you longer to find a deal that works for you.
Types of Guarantor Loan
There are some different variations of guarantor loans you’ll come across, and it all depends on what you need the loan for. One of the most common types of guarantor loan is a personal loan that you can co-sign with another applicant. This provides all the usual benefits of a personal loan, the fixed interest and monthly instalments, with the addition of a second applicant supporting the loan. Another common variation is for a home loan, where many people co-sign their agreement for a mortgage or homeowner loan with their partner or family member. The idea is that if for some reason you struggle to make repayments due to a financial issue, the person co-signing will guarantee the payments will be made. This gives a lender much less risk because there is two people ensuring repayments on a loan are made on time, rather than just one.
Who Can be a Guarantor?
To be able to get a guarantor loan, you’ll need to find the right guarantor that will support the application. Every lender can have different criteria for what this would be, but in general, they will need to have a good credit rating, be in full-time employment and over 18 years old. Some lenders will have additional requirements, such as the guarantor needs to be a homeowner for example, or even have a limit on their age (no older than 75 years old for example). The person themselves could be a friend, co-worker, family member, or spouse. Again, some lenders may have certain conditions where it can only be someone you’re not related to. This is where comparing the guarantor loans you find is very important. You may find a guarantor loan with affordable monthly repayments for the amount you want, but it could ask for very specific guarantor eligibility that you just don’t have or can’t find.
Whoever you do find that you feel is suitable to be a guarantor, you’ll need to ensure they are fully aware of what they are agreeing to. After all, they will be co-signing your loan and will be responsible to pay if you can’t. You should make them fully aware of the loan you want, the reasons you need it and ensure you have their commitment to helping. You do not want to have a guarantor that goes along with helping you, but if you then lose your job, for example, and can’t pay, they then realise they cannot either. Not only would you be in financial issue, but they would also be too. As it is a joint agreement, you and your potential guarantor will need to both take care before signing.
Positive Benefits of Guarantor Loans
If you find the right person to be a guarantor and you both have the affordability, there are a number of benefits for this type of loan. Firstly, a lender will see your application for credit as a much lower risk than if it was just yourself applying. Secondly, the amount of credit available to you can be considerably more. This is linked to the reduced risk for the lender, meaning they will have more confidence in lending a higher amount to you if repayments can be guaranteed. Thirdly, if the worst-case scenario happens and you suddenly find yourself in financial difficulty, your guarantor will help by making payments for you. This means you can avoid missing repayments as someone has already agreed to make them when you can’t. This will help your credit rating to not be impacted during this period. Then, you can resume making payments yourself when back in good financial health.
Things to Look Out For
As with any lending, you need to be aware of the issues that can potentially happen if you decide on a guarantor loan. When applied for with the right guarantor, and as long as repayments are maintained without fail, guarantor loans can be very helpful products. Anyone who has a low credit score or who wants a higher value loan that they otherwise wouldn’t be eligible for alone can benefit. However, you need to ensure that the interest you’re paying on a guarantor loan is not unnecessarily high. Some lenders will charge you a higher amount of interest for having a guarantor. This is because some may take advantage of the lower risk involved with two applicants and look to make more money from you. This is the same for lenders who will charge you a fee. Ideally, you’ll look to avoid any agreements that involve a fee to agree to the terms or to provide more preferential rates.
The easiest way to ensure you only apply for guarantor loans in your best interest is to use trusted sources. You can find a list of trusted lenders through companies like the Financial Conduct Authority (FCA) or Better Business Bureau (BBB), ensuring you’re using a reliable lender. It’s always better to be safe than sorry as the potential for high charges can end up costing you a lot more over the loan term.
Checking Your Finances
It goes without saying that you should fully check your affordability before deciding on further lending. This is important not only so you can prove to a lender you can afford the repayments you want but will ensure you are aware of your current financial health. There are two main things you should do before applying for a guarantor loan that is just as important as finding the ideal person to co-sign. You should fully flesh out your finances in terms of income and outgoings. There are various calculators you can use online to help you break this down, but by listing your monthly earnings and your monthly outgoings, you’ll quickly be able to see what you can afford. Your disposable income figure will hopefully be positive so that you can easily afford the repayments you’re looking for without leaving you with nothing to spare.
You should also check your credit score before applying. Doing this will provide a quick indication if applying for lending is likely to be successful. You can go into detail and view your full credit report with a credit reference agency, but this will usually come at a cost and would really only be needed if you have a poor or bad score. If your credit score is less than good, a guarantor loan may still be possible, but ideally, you will want to be in the best shape. By identifying if you have a poor or bad score, you can look to find out why this is and start to make improvements to it. You should consider your situation before adding any further debt to your finances and ensure it will not cause you to get into difficulty. If you look in the right places and choose a trusted lender, there is no reason why guarantor loans can’t help you achieve your aims this year.