Your financial struggles naturally impact your credit history. You know it is bad and so do the creditors. You are reminded of it whenever you request an online loan quotation, whereby your request is either rejected or results in stringent terms. The situation will likely be a lot worse due to the rigid lending criteria since 2008’s financial crash – that virtually bars anyone with average credit history from securing a bank loan at all (or to be offered one at exorbitant rates).
Of course, there is a solution to this problem, so long as you are not bankrupt or in an individual voluntary arrangement (IVA).
The solution is called a guarantor loan which lets you borrow at competitive rates and improves your credit history, provided you repay on time. Specifically, you need two years of timely loan repayments to get your credit history in functioning order. This type of a loan is classified as an unsecured loan and you can borrow anywhere in the range of £1k to £15k for a period generally lasting between 1 to 7 years.
Since the 2008 financial crisis, there has been an abrupt growth in a broad range of personal loans such as guarantors, which may be classified as an alternative loan option. Guarantor loans can be obtained through loan brokers; however, you may find that some of these companies charge extra fees. Alternatively, you can find direct lenders who don’t have any hidden charges. One such company I’ve found through research is TrustTwo whom are renowned for their transparent approach. Always check with your guarantor loan provider first that no fees will be added on if you make late payments.
The primary reasons why people are gearing towards bad credit guarantor loans are the cost and a lack of other options.
Fundamentally, a guarantor acts as a co-signatory on the loan agreement, thereby pledging his or her own funds if you are unable to repay the amount borrowed. Almost anyone can be your guarantor, so long as they are not financially associated with you (e.g. your spouse). Therefore, a guarantor could be a close family member, a trustworthy friend or even a loyal colleague.
Your Guarantor Must
- Be in the age range of 25 to 74 years.
- Be a resident of the country where the loan agreement is made.
- Not be your spouse.
- Have detached finances.
- Have a sound credit history.
- Provide proof of identity as well as relevant bank statements.
- Be a property-owner/have a mortgage, be a reasonable tenant or be living with parents.
- Agree and give written agreement to make repayments if you default.
Before You Process the Application
- Forecast your income and expenditures for the length of time you intend to borrow funds. Moreover, use an online monthly loan repayment calculator to get further clear headed.
- Sit down with your relative or friend who is going to be your guarantor and have a detailed conversation. They should completely understand that they will be accountable for offsetting your liabilities if you default.
Hypothetically speaking, thanks to the written assurance of your friend or relative, you successfully obtained a guarantor loan and are now required to repay in fixed monthly instalments. Every month after the repayment date, your lender sends a report to the relevant Credit Reference Agency.
The monthly report showcases the repayment status. If made successfully, the borrower’s credit score would exhibit a marginal improvement. Otherwise, even a guarantor loan cannot save your credit history if you persist with irregular repayments.
Lastly, your mark-up would depend upon the severity of your credit history, but the loan is not cheap and rates typically are about 50% or an APR range from 39.9% to 59.9%. At such a rate, borrowing £5,000 over four years would mean repaying a sum of £10,300 which is not attractive, but gets your life out of a rut.