How To Choose The Right Guarantor
BY: RYAN KH ON WEDNESDAY, MAY 16, 2018
If you are looking to apply for a loan but are in financial difficulty with a poor credit score, you may struggle to find a mainstream lender who will provide you with funding. A common option is to use a guarantor, which is someone you know who agrees to co-sign the loan agreement and ‘guarantee’ repayments if you cannot.
Guarantor loans can be used as a type of unsecured personal loan such as borrowing up to $15,000 or it can be used for business finance as you have another director of a company act as your guarantor. For those applying for a mortgage but have been turned down by their bank due to a poor credit rating, you can leverage your guarantor’s credit score to give you the extra security you need. This also applies to first-time buyers who have no credit score but may have access to finance if they get their parents co-sign their loan agreement.
Guarantor loans are particularly well suited to those who are struggling with low credit, as having extra people associated to the loan agreement gives the lender peace of mind that they can recuperate the money they have lent out.
There are a number of things you should look out for when it comes to choosing the right guarantor to maximize your chances of approval. Guarantor Loan Comparison explains the key things you should be looking out for.
Someone you can trust
With this type of finance, applicants will commonly approach their partners, parents, siblings or closest friends to be their guarantor.
It is essential to find someone that you can trust and can speak openly to about your finances. You should not choose someone that you are afraid to talk money with and you should feel that you can approach them at any time.
This is where family members are usually a good choice and also because you are still likely to be in touch during the loan term, whether it is 5 or 7 years. Will you still be talking to a girlfriend or work colleague in 5 years’ time? This is why close family and friends are ideal.
You should never put someone as a guarantor for your loan if you have not asked them. They must be told what is involved with a guarantor loan agreement, and that they would feel comfortable with making payments on your behalf if something was to go wrong at a later date.
Someone with a good credit rating
When deciding on somebody who can be your guarantor, one of the most important things you will need to take into consideration is making sure it is somebody who has a good credit score. This is based on the premise that if a good credit customer is willing to support you, the guarantor lender feels that they can support you too.
Having a guarantor with a good credit history provides additional security to the lender that they will be able to recuperate funds. In addition, someone who is employed, earns a healthy salary and has a homeowner status will give the loan provider peace of mind that the guarantor is not going to go AWOL and should be able to cover repayment if need be.
It can't be someone you are financially linked with
It is possible for you to choose anyone who is 18 or over apart from there being one single caveat - they cannot be financially linked to you. Occasionally it is possible for a partner to act as a guarantor, but you will need to prove that you are financially independent of them.
What we mean by this, is that you do not hold any joint bank accounts with someone, as this is considered as being financially linked to somebody else.
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