Whether you’re starting a new business or you’re planning some necessary home improvement, it’s going to take a lot of money. The one solution that comes up is certainly the loan. It seems pretty easy: you go into a bank, say that you need a certain amount of money and you sign a contract. Well, in reality, it actually looks a bit different. If your finances are going ok, you’re going to get that loan, but what if you have no credit history due to poor financial state or you have a damaged credit score? In that case, there’s another solution: guarantor loan. Let’s see how it works.
What is a guarantor loan?
Guarantor loans are often defined as unsecured loans. It means that bank knows that you might not be able to pay off your debts andso, in order to protect their money, they’ll ask you to find a guarantor to also sign a contract. This contract says that if you find yourself in a situation that you can’t pay off your debts, the guarantor will do it for you. Guarantor loans are some sort of alternative to the regular loans. Unfortunately, many people are in a need of this kind of loans, because they have been rejected even more than once by their banks when asking for regular loans. Banks simply need to make sure that you have almost perfect credit scores before saying yes to your loan.
How do guarantor loans actually work?
As we said before, you need to find a guarantor to co-sign the contract. When you do, the lender will be confident that the debts will be pa id off and they’ll be willing to reduce interest rates. They’ll simply offer you a better deal. The most important thing to remember is that the bank will call the guarantor to pay your debts only when there’s absolutely no other solution and payment source.
Where can I find a guarantor? Can someone from my family be my guarantor?
This is a very common question when it comes to guarantor loans. It can be pretty frustrating when you need to ask someone to be your guarantor. You must be aware of the delicacy of the situation, not everyone will be as happy to help you as you might think. So, who to ask first? Many people decide to leave it in the family. It’s usually someone that’s close to us but there’s a catch: it can’t be someone you’re financially attached to, like your spouse. Whoever you choose, make sure they understand all the risks of these kinds of contracts. They need to understand that if something goes wrong, they might lose some of their assets, maybe even their house.
Guarantors help you borrow much higher amounts of money than you could borrow from a bank on your own (or maybe you even couldn’t borrow any, due to poor finances and bad credit scores). You just need to be very careful.