What is a Guarantor Loan?
A guarantor loan involves getting someone you know, usually a parent or other family member, to vouch for your ability to pay back a loan. They themselves will become liable to make the repayments on the loan in the event that you cannot. So, in other words, they are your security against the loan.
What are the Risks of a Guarantor Loan?
The first thing to think about when considering taking out a guarantor loan are your own personal circumstances and whether or not they are likely to change. For example, you may have just secured some type of employment and are working through a probationary period. Should the worst happen and you don’t complete the probationary period successfully and are therefore out of work, would you still be able to continue making the repayments on the loan? Using a loan calculator will help you work this out.
Personal relationships are also to be considered carefully. Acting as a guarantor or borrowing using a guarantor can in some circumstances put pressure on relationships, particularly if things go wrong. If you are going to take out a guarantor loan, then you need to sit down, write out a plan that both parties are happy with and then stick to the plan. The plan should contain contingency information that outlines what will happen if things go wrong.
What are the Rewards of Taking out a Guarantor Loan?
Guarantor loans are great for those unable to get an unsecured loan. It may be that you have a poor credit history or can’t prove a regular income. Companies like TrustTwo specialise in helping people in these situations to get the money you need.
Taking out a guarantor loan for essential items can mean that the borrower isn’t forced into the position of taking out a loan such as a payday loan that typically comes with an extortionate rate of interest. This type of loan often leads to problems, whereas a guarantor loan is a far cheaper way to borrow. In addition to this, guarantor loans can often be taken out over a long period of time and this means the repayments are spread more widely and are therefore more manageable.
Should I Take Out a Guarantor Loan?
If you have considered the risks and decided that they won’t cause you a problem and if you have a plan that you and your guarantor are both happy with, then taking out a guarantor loan can be an extremely good way to secure the money that you need at a good rate and look to a brighter future.