According to Wikipedia, a guarantor loan is a type of loan that allows you to use a guarantor to get approved for a loan. A guarantor is someone who guarantees to the lender that the loan will be repaid in the event that you cannot keep up with the payment at the deadline. The following are the nine benefits of applying for a guarantor loan.
- Enables People with Poor Credit History to Get a Loan
Guarantor loan enables people with poor credit history and are struggling in financial problems to get a loan. Normally, if your credit score is poor, banks and other lenders will reject your loan application. With a guarantor loan, you can easily get approved for a loan as long as the guarantor that supports you has a good credit score. The lender will only perform credit check on the guarantor and you won’t be subject to any credit check.
- Ability to Borrow a Larger Loan Amount
Guarantor loan allows you to borrow a large sum of money because you are using your guarantor’s good credit score to seek the loan approval. According to Buddy Loans, a guarantor loan is not like payday loan where you are only allowed to borrow a small amount of money of up to $1,000. It enables you to get approved for a bigger sum of loan of up to $7,500. Being able to borrow more money from a guarantor loan prevents you from having to resort to bank or other lenders when you have a poor credit history. If you want to borrow a large amount, it is best to get a guarantor who already owns a home.
- Fast Approval and Release of Funds
Guarantor loan allows you to get the funds you need for the emergency project fast. The approval process is not as lengthy as the bank. Typically, a staff will call your guarantor and confirm about the information on the application. If the information provided by the guarantor matched the information entered on the form, you can expect the guarantor loan to be approved fast. Since the loan is approved based on your guarantor credit profile, the funds will be handed over to him and he should pass it to you.
- Affordable Interest Rate
Guarantor loans offer reasonable interest rates that you can afford. In payday loan, the interest can be exorbitant and make it hard for you to pay back so that you are forced to roll over the payment to the next month. The lender will let you know the interest rate after you have submitted the application. You can then decide whether you want go ahead and apply the loan.
- Flexible Repayment Term
Guarantor loans have a flexible repayment term of 12 – 36 months. The lender will contact you and ask for your financial information to determine a monthly payment that you can afford. The loan amount and your income are the two factors that the lender will usually take into account when determining the repayment term. You will never be forced into a loan term with a monthly payment that you can’t afford. The flexible loan term makes guarantor loan much easier to repay compared to payday loans because payday loan has short loan term of 2 – 3 weeks.
- Rebuild Your Credit Score
Getting a guarantor loan can help you to rebuild your credit score so that you can apply for a normal loan without the need of a guarantor in the near future. When shopping around, make sure you look for a lender that reports to the credit reporting agencies so that your payment will be reported and your credit score will increase as you follow up on the repayment on each deadline.
- Consolidate High Interest Debts
Guarantor loans can be used to consolidate your debt when you face problems in repaying your current high interest debts. You can inform the lender about what debts you want to consolidate and they will repay back the specified amount to the lenders. By using a guarantor loan to consolidate your high interest debts, you will only have a single payment date to manage. Consolidating your debts with a guarantor loan can reduce the burden because the interest fee and monthly payment will be lower.
- Lower Default Rates
Guarantor loans have lower default rates compared to payday loans. The report from Citizen Advice shows that people who apply for guarantor loans is 55 times less likely to end up on loan default compared to payday loans. Given the statistics, you can have less of a worry that you will fail to pay back the loan.
- Guarantor is Easily Approved
Finding a guarantor is not as hard as people assume it to be. The lender is not that strict and they will approve any guarantor as long as they fit the basic requirements. The guarantor can be an acquaintance or a family member or friend who is willing to help you to get approved for a loan that you need. However, if you found someone to be your guarantor, make sure you explain to him about his responsibilities. Many guarantors assumed that their signatures is all that is needed to vouch the loan without thinking that they will be responsible in taking over the loan in case you default on the loan.
Conclusion
In conclusion, you can consider applying for a guarantor loan if your credit score is low and you have been rejected by other lenders for a regular loan. All you need to do is to find someone who is financially capable and understand your financial circumstances to become your guarantor.
