Although the implementation of responsible lending rules has proved to be very positive in terms of financial institutions limiting bad debt, it has become increasingly difficult for anyone with a poor credit rating to secure a loan.
Whilst a number of options do still exist, such as payday loans, which do not require the applicant to pass a credit check, the associated APR (Annual Percentage Rate) of these loans ensure that they are a risky proposition at best. Whilst they may be used to ease short term financial pressure, the fact is, in the long term, they may actually make things worse.
Fortunately another option does exist for potential borrowers in the form of a guarantor loan. Not only does this type of loan not require the borrower to have a good credit rating, it also offers the chance to enhance the existing credit rating of the borrower by providing the opportunity to demonstrate the ability to maintain regular repayments.
Guarantor Loans Explained
Although no one enjoys being subjected to a credit check, this is now an unavoidable part of the new responsible lending era in which we live. A bad credit rating or even no credit history at all is often the deciding factor in whether a loan applicant is successful or not.
The major difference between guarantor loans and other personal unsecured loans is that guarantor loans involve having someone other than the borrower who will co-sign the loan agreement to act as guarantor for a loan in case the borrower is unable to keep up with the repayments. This ensures that if the borrower is unable to keep up with the repayments, the loan will still be repaid in full, therefore significantly reducing the risk to the lender.
This is obviously a major role to undertake on the part of the guarantor and they must satisfy certain criteria, such as having a good credit rating of their own, in order to be eligible to take up this role.
Although the importance of the loan’s guarantor cannot be underestimated, it is important to remember that as long as the borrower keeps up with the agreed repayments, there will be nothing for the guarantor to do except to sign the documents at the start and then confirm their details before the loan is paid out.
Although guarantor loans are unsecured loans, whoever you ask to be your loan guarantor must be able to satisfy a number of requirements from the lender. Attributes such as an excellent credit rating of their own, owning their own property, having a regular income and not being financially dependent on the borrower, will all play a critical role in deciding whether the person you put forward as the guarantor for your loan will be acceptable to the lender.