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Guarantor Loans - A Solution For Bad Credit Finance?

Since the financial crisis began in 2008, loan companies have been tightening up their lending criteria. This means they are more choosy about who they will approve for a loan, and so if you have a less than perfect credit rating, or simply a low income, you may well have found it very hard if not impossible to be approved for finance.

If you've tried all the normal ways of getting a loan and have been unsuccessful, then a more unconventional type of loan might be the answer: a guarantor loan.

What Are Guarantor Loans?

Simply put, a guarantor loan is one where someone else with a better credit rating agrees to guarantee that the repayments on the loan will be made. By signing up as a guarantor, this person will be legally responsible for making the repayments if you fail to keep up with the schedule. This extra security for the lender allows them to approve a wider range of loan applicants than they normally would.

Who Can Stand As Guarantor?

In theory, anyone could be the guarantor of your loan, but in practice it's usually a family member such as a parent or sibling. Most lenders offering guarantor loans stipulate that the guarantor must be a homeowner or mortgage-payer, but this doesn't mean that the guarantor's home is under threat - guarantor loans are almost always unsecured.

Also, the guarantor should be under retirement age and have a regular income, and must be a resident of the UK.

Are There Any Disadvantages?

Apart from the possible difficulty of finding someone willing to stand as your guarantor, the major problem with this kind of finance is the cost. Almost by definition, someone applying for one of these loans will have a bad credit rating to some degree, and this means that it's still a fairly risky proposition for the lender. This risk is reflected in the interest rate charged, which will be much higher than a standard unsecured loan. Also, most lenders will only agree to fairly small loans of up to around £3,000 so if you're looking for more than this then you'll probably be disappointed.

However, if you've exhausted all the usual loan options but still need finance, and can find someone willing to be your guarantor, then this is certainly an option that's worth looking into.

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