3 Things Guarantor Loans Can’t Be Used For

Guarantor loans are building in popularity and now more and more people are realising just how they can be used to obtain higher amounts of credit, even if you have a poor credit history. The problem that many young people face is that they have no credit history at all, having never borrowed before, and this can mean that they get turned down for more mainstream lending, even if they’re really good with their money.

With a guarantor loan, you can borrow up to £10,000 from some lenders, although this is rare. You’re more commonly able to borrow up to £5,000 or £7,500 depending on the lender and your ability to repay. Of course, lower amounts starting at £500 are available too, so there’s a wide spectrum of possible borrowing which should be able to meet any needs you have. However, there are one or two restrictions on what you can spend your guarantor loan on, and a lender will not agree to advance you money if they think you are getting the loan for the following reasons.

Business Costs

If you own your own business and you need some money to buy equipment or as a start-up advance, then you should look into getting a proper business loan, rather than using a personal loan for this purpose. There are Peer-to-Peer business loans available out there, as well as specialist guarantor business advances, so always go down the appropriate channels if the money you borrow is going towards a venture. This is important because business loans carry different levels and types of risk than personal ones, so you could be putting both yourself and your guarantor in financial peril if something goes wrong.

Excessive Gambling

If it’s obvious that you have a gambling problem or if you simply want to put a lot of money down on a ‘sure bet’, then lenders will not agree to give you the money. This is because no gambling is 100% safe, and you could lose all of the money you borrowed in one fell swoop. Having a problem with gambling not only makes you look financially unstable in the eyes of the lender, but it also puts your potential guarantor at risk if you cannot repay the money back. It’s unlikely that you’ll make it to the pay-out stage of a guarantor loan if you have a genuine problem, but if you do, then please think twice about what you’re doing. If you’re concerned about your gambling then please visit http://www.gamcare.org.uk.

Crime

This may go without saying, but if you’re planning to use your guarantor loan to fund any crime or criminal activity then you will be turned down by the lender and your details may be passed on to the relevant authorities, depending on the problem. Some people will try to ‘recycle’ stolen money through loan companies to make it look legitimate (this is called money laundering) and any sign that this is the reason for wanting a loan will be met with a turned down application.

5 Steps to Getting a Guarantor Loan

Introduction

If you have a poor credit history then getting that much-needed finance without having to pay through the nose can be tough.Guarantor loans were launched with the intention of bridging the gap between the strict-criteria high street loans and the high interest short term options.

Throughout this article we are going to outline how to get a guarantor loan in five simple steps.

Educate yourself about the product

Too many people risk getting declined simply because they haven’t educated themselves about the loan product and how it works. Guarantor loan lenders are able to help those who have been turned down by their bank or mainstream lenders due to the support of a guarantor. The guarantor simply backs up the application and signs an agreement to say that they will make payments if the applicant ever fails to do so.

Decide upon your loan amount and term

Prior to looking for a guarantor it’s important that you have a good idea of the loan amount and term you require. The loan amount will be largely dependent on the purpose of the loan. For example, if you’re using the loan to fund the purchase of a new car then you need to find out exactly how much it’s going to cost you, if you’re using it for debt consolidation then calculate how much debt you need to pay off.

Having worked out exactly how much you need, you next need to make a decision regarding the term of the loan. The most suitable loan term for you will be largely dependent on your monthly repayment affordability. If your budget allows you to afford large monthly repayments then a shorter loan term will be the most cost effective and suitable option, however if your budget is tight then spreading the repayment over a longer term would be more appropriate. Using the loan sliders on a guarantor loan lenders website will help you to find the most suitable repayments for your budget.

Find a suitable guarantor

Your next job is finding someone suitable to stand as guarantor. Almost anyone can stand as guarantor however some lenders may not allow spouses or partners due to the fact that they are financially linked, in general, the majority of applicants choose to use their parents, siblings or friends. There are a few very important factors to consider when choosing a guarantor:

• Trust: There needs to be a good mutual trust between yourself and your perspective guarantor.
• Contact: It’s important that you and your prospective guarantor are in regular contact meaning if there were any problems, you know they’d be easily contactable via whatever means.
• Understanding: There needs to be a good mutual understanding of each other’s finances. The guarantor needs to understand why you’re taking out the loan and why you've been unable to get a loan via your bank. You also need to be sure that they are financially ready for the responsibilities they are about to take on.

As you can see, it's important that your guarantor needs to be someone who is very close to you which is why parents are a very popular choice. Having satisfied yourself that the person in question meets each of these points, you now need to ensure that they meet the criteria of the lender. Each lender differs however generally they will require the guarantor to:

• Be a UK homeowner (some lenders may accept tenants)
• Have a good credit history
• Be able to comfortably afford the repayments of the loan.

We understand that credit history and disposable income are not the type of things that regularly pop up in conversation which is why you need to have a conversation with your prospective guarantor.

Approach them about being guarantor

Having educated yourself about the product and decided upon the finer points of the agreement you are now in a good place to approach someone about being guarantor. While a telephone call may suffice, talking to the person face to face will give the conversation a much more personal feel.

When discussing the loan with the potential guarantor there are a few things you need to cover off:

• Why you’re taking out the loan – you need to tell the guarantor exactly why you’re taking out the loan. You also need to explain why you've been unable to get a loan via your bank and how why you've chosen to go for a guarantor loan.
• The responsibilities of being a guarantor – you need to discuss what their role is in the application process, what they need to fill in and sign and how their finances may be affected by being a guarantor.
• How you intend on paying the loan back – you should make it clear that it is in your best intentions to make each and every one of the loan payments on time and in full. You should also explain that if you were ever struggling to make a payment you would contact them and let them know before the lender requested the payment.

The more you can cover off in this conversation, the more harmonious the loan will be. Providing the person in question is happy to stand as guarantor you are now ready to make an application.

Make your application

Each lender will have a slightly different application process however the majority will be based online. In order to make the application as swift and hassle free as possible it may be worth ensuring that you and your guarantor are present at the time you apply.

Having made an application it is likely that you’ll hear from the lender within a few hours. In some cases lenders will require some additional documentation however often they’ll be able to offer a decision very swiftly. If everything goes through there’ll be a good chance you’ll get your loan paid out the same day.

4 Benefits of Guarantor Loans

There is no doubt that the word ‘loan’ has a negative connotation. It may derive from the fact that a loan is a type of debt, which again has a negative reputation. It should however be remembered that not all debt is bad debt, in fact; having some debt can help to improve your credit history and indeed your financial situation.

Since their rapid rise in popularity, guarantor loans have struggled to stay out of the media spotlight. In times, guarantor loans have been criticised for their interest rates, debt collection strategies and lending criteria. However, as we’re often told, you shouldn’t believe everything you read in the papers; especially as it’s often over-hyped and over exaggerated. Throughout this article we are going to aim to dispel any myths surrounding guarantor loans and outline 5 benefits of them.

1. A bad credit rating can be considered

Having bad credit can make it tough to get your hands on the credit you need. Having been turned by the low rate lenders, you may feel that short term credit like payday loans are the only option available.

If you can find a friend or family member to support your application, guarantor loan lenders may be able to help, at a fraction of the cost of payday loans.

2. Long term solution not a short term fix

Whereas other subprime loan types may only be to offer up to £2000, some guarantor loan lenders are now able to offer up to £10,000 which is repayable over a term of up to 6 years.

This makes guarantor loans a genuine long term solution to financial problems. For example, if your car breaks down, you may be tempted to take out a payday loan to fix it. However if the car is old and there’s a good chance it will break down it may prove more cost effective simply to buy a new one outright. By using a guarantor to fund the purchase of a new car you could save yourself money in the long run.

3. Quick and easy application

Historically, the guarantor loan application was paper-based and time-consuming. Nowadays the process is based online meaning it can take less than 15 minutes to complete.

Having received your application, lenders can then have a decision within the hour and providing the application goes through successfully you can have the funds in your bank the very same day that you apply.

4. They can help to improve your credit score

Having no credit history is almost as tough as having bad credit history these days. This is because lenders create predictions regarding future payment behavior which is based on your credit history. If lenders have no history to go by then they’ll be unable to make their predictions and will subsequently turn the application down.

Guarantor loans are a popular choice amongst those with no credit history. By proving that you are able to competently repay these loans you dramatically boost your chances of being approved for lower rate credit in the future.