Pros and Cons of Guarantor Loans
Before entering any type of financial arrangement, it pays to know what you are getting into. While guarantor loans have helped millions of people and will most likely continue to exist for years to come, there are known advantages and disadvantages with this form of credit.
Get a loan with bad credit.
With a guarantor loan, your past credit problems or financial misbehaviours are overlooked. Even with existing charge-offs, CCJ’s, IVA’s, etc. you can still obtain a loan with the help of a close person with good credit rating.
Get lower APRs.
Other loans meant specifically for people with poor credit are downright expensive, and most of the time these rates are actually unreasonable. With a guarantor loan, on the other hand, you can get a loan with decent APR, though still typically higher than standard loans for people with good credit.
Borrow a higher amount.
With typical payday lenders, the most you can borrow is up to £1,000 only, whereas with guarantor lenders, you may be able to unlock up to £10,000. This should prove useful if you particularly need a huge sum for bigger life expenses.
There will still be need for credit checks.
Hold your thoughts right there if you think getting a guarantor loan translates to skipping credit checks. While you may not have to undergo credit checks yourself, they will still be performed on your guarantor. Ideally, before applying for this type of loan, guarantors should know where they stand, because only those with fair to almost perfect credit would be accepted.
Takes longer to be paid off.
While guarantor loans may give you access to more cash, there’s also an associated danger with it. Basically, as you borrow more, it also takes you longer to pay it off, which would be risky as well. Sudden unemployment or underemployment can lead you to fall short on your other obligations.
The guarantor will be responsible for your actions.
Neither you nor the guarantor should take a guarantor loan deal lightly. While there will be no implications to them if you keep up with your repayments, it would be a different case if you fail to do so. As a cosigner, they are legally bound to take over the repayments if you cannot do this anymore for whatever reason.
Finding a guarantor is not easy.
You can’t just post an ad and expect someone to volunteer as your guarantor. You may have to talk to each of your relatives and close friends, which may not only be uncomfortable, but convincing them can be hard as well. It takes strong ties, and the faith that you will never break that trust they are giving you.