Today’s tough economic times have made it almost impossible to land substantial credit. Just a few years back, it was easy to apply and qualify for a short-term loan even if your credit records were not that great. Recession and all many of frequent crisis have made bank skeptical about lending money to just anyone. It is a situation that has made things even harder for people with bad credit to secure loans. For them, their only reprieve comes in the form of a guarantor loan.
The loan applicant will need to borrow money through another person, often a family member, who is to guarantee the full repayment of the loan. A guarantor loan is thus a form of unsecured credit, and it works the same way as having a guarantor on your house rental agreement or mortgage. The guarantor is an assurance to the lender that the money will be paid back even if the person borrowing the money fails to make payments. In short, both the borrower and guarantor are held accountable for the money owed.
The Pros
- It is a favorable arrangement that helps a person in need to money to get a loan for whichever reason the money is for, be it to buy a new house, care, or pay outstanding bills. On the flip side, the creditors do not have to worry about getting the money back in full from the borrower since the guarantor is a safety cushion that guarantees payments.
- It is a loan option that is cheaper and financially saner than that of opting for payday loans or depending on check-cashing agencies.
- The loans are not secured against properties, so you do not have to worry about losing something such as your car or home if you fail to repay the loan.
- Also, a guarantor loan through Money Expert can be a fantastic way of rebuilding a tainted credit record for the borrower.
The Cons
- It can be hard setting up for a guarantor loan especially when it comes to finding someone willing to shoulder the burden of repayment in case you are not able to honor your debt. While most people looking for guarantor loans will approach a family member for such support, it is best to go for a someone you trust completely.
- In some instance, some lenders will require the borrower to provide an affordability check when applying for the guarantor loan, which is from their expenses, and this can make it hard to meet the qualifying requirements for the credit.
- Conversely, the guarantor should have a good credit history or record; a bad record only lowers the chances of getting the loan request approved. Moreover, the relationship between borrower and the guarantor can be affected if the guarantor also fails to help with the repayment.
A loan, irrespective of its nature, should be a last resort to most financial hardships and should be taken to meet specific needs without any deviations. In light to that, it is better to first consider sourcing money from other options such as selling unwanted items, borrowing from family and close friends, or request for an advance at work.
If your only recourse is the loan route, then make sure that you can honor your debts and make full payment of the money owed within the agreed terms and time. Also, make sure that you apply for the loan from reputable sources such as banks and credit unions or other agencies regulated by the FSA.