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.