One type of loan suitable for anyone with bad credit is the guarantor loan. Just as with any other type of loan, this comes with both pros and cons. However, if you do have a bad credit rating and you are struggling to find a loan, guarantor loans bad credit may be ideal.
The Pros of Guarantor Loans
First, we will look at the pros that come with guarantor loans.
More Chance of Being Approved
One of the biggest pros to applying for this type of loan if you have a poor credit rating is you have a bigger chance of being approved than for a personal loan.
This is due to the fact that you have to find someone who is willing to be your guarantor. This means they have to sign up for the loan with you and take over the loan repayments in the event you are unable to make them. This can also have an effect on their credit rating as the fact that they have stood as guarantor is going to be reflected on their credit file.
A Guarantor May Mean You Can Borrow a Larger Amount
Having a guarantor behind you when signing up for the loan gives the lender more peace of mind that the loan will be repaid. Anyone with poor credit is going to be seen as being a bigger risk to lenders.
With this in mind, even if you have a poor credit rating the lender may allow you to borrow more than you might be able to borrow with a personal loan without a guarantor. Of course, this is going to be dependent on the provider and the state of your credit rating.
Guarantor Loans Bad Credit Are Suitable For People with No Credit Rating
If you have never borrowed before you may believe your credit rating will be good and you will be able to apply for and get approval for any type of loan. However, this is not the case. If you have never borrowed before you will not have a credit rating and the lender will not know whether they will be taking a risk on you by allowing you to borrow.
As you will have someone to stand as your guarantor who will have a respectable credit rating the lender is not taking that big a risk. By taking a guarantor loan, you have a chance to get on the borrowing ladder and earn yourself a good credit rating if you repay the loan on time.
The Cons of Guarantor Loans
Now we will look at the cons of taking out a guarantor loan.
Do you wish to Ask Someone to Be Your Guarantor?
One of the biggest downsides to taking out a guarantor loan is you have to be in a position to ask someone to stand as your guarantor.
This means you are going to have to sit down, talk with a close friend or relative, and explain that you have had issues in the past with repaying a loan or credit card. Knowing this they may not want to take the risk of standing as guarantor but they might not like to tell you in case they upset you.
Of course, not everyone has someone close enough to him or her that they can ask them to stand as guarantor. In this case, such a loan would not be an option.
Interest Rates May Be Higher Than With Other Loans
Interest rates on guarantor loans are typically higher than for other loans. This takes into account the fact that you have a bad credit rating and need someone to stand as your guarantor.
In this instance, if your credit rating is not too bad, you might want to consider going for a personal loan.
Friendships Can Be Ruined
If you do find someone willing to stand as a guarantor you are risking ruining your friendship with that person in the event you cannot make the loan repayments and it falls back onto the guarantor.
Yours and Your Guarantors Credit Rating May Be Affected
In the event that you are unable to repay the loan, you are going to get a black mark on your credit rating. Worse still, the loan repayments are going to fall on the person who stood as your guarantor.
If they find they have trouble meeting the loan repayments they too will get a bad mark on their credit rating.
Check out the pros and cons of guarantor loans bad credit and weigh them up before deciding if you want to take out this type of loan. If you do, we can help to match you up with a lender offering competitive rates and affordable loan options.