Guarantor loans are a great way to increase your chances of being approved for a loan if you’ve got a poor credit score or no credit score at all.
When you’ve got a poor credit score, it’s easy to hold off on the decision to buy that car or book that dream holiday because you think that you won’t be accepted to borrow money.
However, guarantor loans have been designed with people like you in mind. They make it much more likely that you’ll be accepted to borrow money and – because repaying monthly payments on time can help steadily improve your credit score – more likely that you’ll be approved for a standard unsecured personal loan or credit card in the future.
What is a guarantor loan?
Although it has a technical sounding name, it’s pretty much exactly the same process that your parents and grandparents went through if they borrowed money from the bank.
Prior to the introduction of computer generated credit scores, it was commonplace for banks or loan companies to require you to have a guarantor when lending money.
Because, back then, they had no way of seeing the statistical likeliness that they’d be repaid, banks and loan companies asked for a trusted third party (a guarantor) to vouch for the borrower and to agree that – if repayments weren’t made – they would accept responsibility for the debt and pay it back themselves.
In recent years, the same guarantor loans have become a popular way for those with poor credit scores to borrow larger amounts of money.
If you’ve had difficulties in the past, or have no repayment history, guarantor loans can be a great way to borrow the amount you need to finally buy that car you’ve had your eye on, do some work on the house or go on the holiday you’ve been putting off.
Who can be my guarantor?
Technically, the guarantor for your loan can be anybody over the age of 21 with a regular income that can afford to make your repayments should you not be able to.
However, it’s a good idea to make sure that it is somebody that trusts that you can make the repayments and that you have a good relationship with.
They’re an especially great way for your mum and dad to help you out without putting themselves out of pocket. (It’s important to know that, although having a guarantor is a great way of getting a helping hand, it’s a big undertaking for the person agreeing to be a guarantor. However unlikely it may be, the person must be willing to take on responsibility for your repayments, should you not be able to pay.)
If you’re thinking about becoming a guarantor – be sure to check out our quick guide.
How will a guarantor help me get a loan?
In the eyes of the lender, having a guarantor makes you a much safer bet.
It gives them a reliable back-up option that they know they can depend on for payments – sort of like having a back-up parachute before jumping out of a plane. You don’t expect to have to use it, but having a back-up option makes you feel a lot better about making the jump. (Your guarantors will have to go through the same checks and processes as you – they will need to provide bank statements, bank details and proof of ID, for example – so that the lender knows that they’re a suitable choice.)
However, because the loan company is statistically far more likely to be repaid, guarantor loans are a win/win for everybody involved: the lenders are far happier to lend you the money you need, and you’re more likely to be granted larger amounts with a lower APR.
What happens if I default on my guarantor loan payments?
If you default or can’t keep up with the repayments, the loan company will ask your guarantor to dip into their own wallet and cover your missed repayments. They will also chase you for the remainder of the loan and any interest that you’ve built up.
It’s important to know that, as a very worst case scenario, they can even take you and your guarantor to court for the remainder of the balance. Although it sounds a bit daunting, this is an unusual and unlikely situation to occur – so don’t be put off applying. Just be sure that you and your guarantor know and understand the risks before you sign on the dotted line.
Guarantor Loans: A great way to borrow
Guarantor loans can be a great way to borrow large amounts of money you need for that big purchase or project, as well as repairing your credit score at the same time.
Bamboo offers personalised loan quotes that are tailored specifically to you and your circumstances, showing you exactly how much you could borrow and how much you’d have to repay. Plus, if you’re accepted, the money could be in your account the same day. Representative 49.7% APR.
If you’re considering taking out a guarantor loan – why not get an instant quote today to see how much you can borrow? It’s quick, easy and leaves no mark on your credit history.