At Creditplus, we know that trying to build a solid credit history can quickly turn into an exhausting cycle: you see your credit application rejected because you haven’t got a strong credit file, and you’re unable to build a strong credit file because you can’t secure credit.
A lot of people find themselves in that situation and, although there are lenders who will let you borrow if you have a poor or nonexistent credit history, these may not always be the most reliable or responsible options in the market.
Guarantor loans could be a safer alternative and there is an increasing number of responsible lenders, who are now offering them as an option – like the Credit+1 Guarantor Loan.
That’s why we put together this quick guide that will help you make an informed decision when it’s time to determine if a guarantor loan might be the best solution for you.
First things first: to decide whether a guarantor loan may be the right finance option for your personal circumstances, first you need to know exactly what we’re talking about.
A guarantor loan consists of a finance agreement where someone other than the borrower – usually a family member, friend or co-worker – agrees to repay the agreement if the borrower is unable to meet the repayments. The guarantor usually needs to have a strong credit file, which will reduce the risk for the lender making it more likely for the finance application to be approved.
Guarantor loans can either be secured against the item you will be purchasing with the money you're borrowing (like a house or a car) or unsecured, meaning the lender is happy for the guarantor to serve as the sole guarantee of repayment.
A secured guarantor loan – like the Credit+1 Guarantor Loan - adds an extra level of security that protects both the lender and the borrower and can help you get more competitive rates on your finance agreement.
Guarantor loans may be the perfect solution for someone who either doesn’t have a great credit history or hasn’t had the chance to build one, but can afford to repay the loan.
Under such circumstances, if you’re able to provide someone who is willing to guarantee the repayments if you can’t, that may just be the extra step you need to take to get your loan application approved. And that’s not the only advantage: if you are able to meet your repayments on time, the guarantor loan you take out will help you build a solid credit file, which, in turn, will help you secure credit in the future.
When it comes to car finance in particular – which, as you know, is where we shine – a secured guarantor loan has the additional advantage of enabling the lender to offer you lower rates than you would normally pay.
By having the finance agreement doubly secured by your guarantor and the vehicle you’re purchasing, the lender – let’s say, Creditplus – will be more confident in their ability to recover the borrowed amount, which allows them to offer cheaper finance terms.
Taking out a loan is never a decision that should be taken lightly, and a guarantor loan is no exception. Considering that two people will be responsible for the finance agreement, it is crucial that both the borrower and the guarantor are fully aware of what they’re agreeing to before making a decision. You can find below the top things you should watch out for before applying for a guarantor loan:
You may think that this goes without saying, but you’d be surprised at the number of people who don’t tick this check box. Entering a financial agreement together is a real commitment that can have consequences for you both, so ensuring that you have no questions about their character or their sense of responsibility is essential – whether you’re the borrower or the guarantor.
You should study your options in depth before deciding to apply for any form of credit. Although a guarantor loan may be extremely helpful in some cases, this will not apply to everyone’s personal and financial circumstances. Doing your homework and being aware of what type of solutions may be available to you can save you a lot of trouble in the future.
Applying for finance without making sure that you meet the lender’s criteria – both as a lender and as a borrower – will very likely result in a waste of your time and resources, so, before applying for a guarantor loan, make sure you go through the lender’s eligibility criteria thoroughly. If anything is unclear, give the lender a call to sort out any questions you may have.
You should never go into any financial agreement unless you’re fully aware of the consequences of not being able to repay it, but this is even more important with a guarantor loan, as non-repayment will have consequences both for you and your guarantor. Non-repayment can not only damage your credit file as a borrower, but it may also put your guarantor under financial strain and get you both in a difficult situation.
Any reliable and ethical lender should be upfront with you about your finance journey. Make sure both you and the guarantor are fully aware of what will be required from you during the process, how long it may take and what steps it will involve. Being comfortable with the process you’ll undergo together plays a crucial part in making sure that no one has any regrets - meaning the whole process can go as smoothly as possible.
Now that you know what a guarantor loan is, how it can help and what to be aware of before going for this type of finance, it’s time to make a decision. Check out our Credit+1 Guarantor Loans and get a great set of wheels with a top guarantor loan to fund your purchase.