If you are looking to take out a loan and have a poor credit score and are concerned that you will not be granted a loan on that basis then you might consider taking out a guarantor loan.
A guarantor loan is a type of loan where someone you know and who also knows and trusts you will become the guarantor for your loan. In effect they will be responsible for paying the loan if you are unable to for example you fall ill, or you lose your job and are unable to repay the money which you borrowed.
The first step in applying for a guarantor loan is to find someone who will be prepared to act as your guarantor. This person could be a friend or family member.
- When you first approach the person, you believe could act as your guarantor you will need to be ready to answer all of their questions so that you can put their minds at ease. Here are a few pointers when you explain you are seeking a guarantor for a loan.
- When you ask someone to be your guarantor you must bear in mind that mixing family, friends and money is something never to be taken lightly. If you fail to repay the loan and they are now left with having to repay the loan it may sour the relationship. You will have to explain to the guarantor that lenders offering loans for bad credit no guarantor are not willing to lend to you and that you need someone with better credit score to help you.
- Prepare a list of all your finances. This must include all your outgoings and income per month. You should show your guarantor that you are able to afford the repayments for the loan you are looking to take out and that their name on the loan agreement is as close to be a formality as possible. You want to make them comfortable as possible.
You must be clear with your guarantor what a guarantor loan actually involves. They should be aware that in the event you are unable to repay the loan that they will be responsible for the loan repayments.
Asking Someone to Act as Your Guarantor
The reason that most people look for guarantor loans is that they have bad credit scores and that the lenders they have approached are not willing to approve loans for bad credit no guarantor. These lenders may not even support guarantor loans meaning you will need to look for a lender which has the facility to provide guarantor loans for bad credit
So, you know who you will ask to be your guarantor, they cannot be someone that is financially linked to you and that it is not a requirement that they own a property provided they have good credit, are over 18 and are legally resident in the UK.
Understand the responsibility you are expecting them to undertake on your behalf, so it pays to prepare for your meeting with them. Before asking to sit down with them it is advisable to prepare as much as you can beforehand.
Go get a pen, paper, payslips, bank statements and calculator sit down with a cup of tea and start to write down all your monthly outgoings, regardless of how small or insignificant you might think they are you must jot them down.
Then you write down your monthly income. Once you have all this information think about all the expenses you can reduce or cut out. You need to demonstrate to your guarantor that you are serious about getting your finances in order by demonstrating you are serious about your outgoings.
If you can take on another job you will want to tell them that, so they understand that you have more money coming in soon when you get paid in your new job.
You must approach your guarantor in the same way you approach a lender and that is to be fully transparent, no fudging the numbers to make them look better than they are for starters.
It is important that you believe your own numbers above all and that you are comfortable with the repayments. If you feel that you might struggle with the loan repayments either borrow less or try and reduce your outgoings a little more.
Your guarantor will ask you why you need a guarantor and the best answer is the honest answer that your credit score is not in the best of shape or maybe that your credit history is not established for you to be able to apply for a short-term loan.
Explain to them that if you can get a guarantor loan you can start to build your credit history or rebuild if it has suffered in the past from previous financial mistakes.
When you meet with your potential guarantor show them your monthly income and outgoings, this is no time to be coy about your finances and despite we here in Britain having a reluctance in discussing money it is time to put that to one side.
If you are unsure how to approach your guarantor think about how you will like to be asked if the tables were turned. What questions would you ask, which documents would you like to see produced. Will you want copies of the documents, if so, then so may your guarantor so make sure you print out multiple copies to give them.
Let’s look at who could be a guarantor for you for your guarantor loan
Someone You Know
You may already have someone in mind that would be prepared to be your guarantor, it could be a family member, a close friend or a work colleague who knows and trusts you. You want to be sure that you can repay the short-term loan you want to take out as stated above you have to put them at ease you will repay the loan.
They Have Good Credit
To be a guarantor it helps that they have good credit and people are worried that asking someone they know to be a guarantor might be reluctant to admit to having poor credit.
For a person to be a guarantor does not require them to have the best credit score, but they need to be able to repay the loan if you are not able to. They must prove they are in a financial position to pick up the repayments if something happens to you.
A guarantor cannot be someone that is struggling to repay their own bills as they will fail the affordability check, or they are currently bankrupt.
No Financial Ties Between you and the Guarantor
You cannot ask someone with which you share financial ties with to be your guarantor. For instance, if you have a joint bank account or joint mortgage then they cannot be your loan guarantor for a short-term loan.
If your partner or spouse do not have any financial ties and are not co-signed on a loan or guaranteed on any other loan that are currently outstanding at the time of your loan application, then they could act as guarantor for you.