If you need a loan but you have a low credit score then you may worry that there will not be any loans available to you, particularly if you want to borrow a large amount of money. However, there are guarantor loans available for this purpose. These will allow anyone will a poor credit score to be able to borrow money as long as they can find someone who is prepared to act as a guarantor. There can seem like something that would be really helpful but there are some issues that you need to consider first.
Can I find the right guarantor?
Finding a guarantor may not seem that difficult. You just need to find someone who has a good credit record who will be willing to sign for you. However, you and they need to be aware that if you miss a payment the guarantor will have to pay it. In some circumstances, if the lender feels the borrower is not reliable, they will just choose to take money from the guarantor without trying to see if the borrower has it first. The guarantor will also have to cover any costs incurred by the borrower missing repayments. It is important that the guarantor is fully aware of their responsibility and the risks that they are taking. Even if the borrower is completely sure that they will never miss a repayment, there is always a risk that this might happen and the guarantor may need to make the repayment instead. This means that the guarantor will need to ensure that they always have enough money available to cover the repayment just in case. They could end up paying none but in a worst case scenario they could end up having to repay the full loan and they need to be aware of this.
It could be that you end up falling out with the guarantor if they have to repay a lot of loan as they may feel that this was more than they had signed up for. It could therefore be wise to discuss this with them and ascertain what their expectations would be. It may be that they would expect the borrower to repay any money that they had to pay for example. If this is the case then it is wise for both parties to have a copy of a written agreement stating this so that they are in agreement with what will happen in this scenario. This should help to maintain a good relationship between them.
Will the money help to improve my life?
It is worth thinking too about the impact that the money will have on your life. Think about the difference that it will make and whether it will be really worth it. Consider whether it might be better to just go without the item or whether you can save up for it instead. You may feel that you cannot wait or that you will not be able to save up very easily. It is good to imagine the difference it will make but also what might happen if you do not get it and whether the difference will be significant and worthwhile. It can sometimes be hard to step back and take the emotion out of this sort of decision. However, you can discuss it with someone else and they might be able to help with this. It might even be wise to discuss it with your guarantor as they may want to know your reasons for taking out the loan anyway. They may be more likely to help you if they feel that the reasoning behind your loan is worthwhile.
Can I afford to repay what I borrow?
Although your guarantor will cover any repayments that you cannot afford, it is wise to still think about whether you can afford to cover the repayments. They will not want to repay the loan for you unless it is really necessary. You will also probably want to pay for it yourself if you can, rather than rely on someone else to do it for you. Therefore, you need to find out how much the repayments will be so that you can calculate if it is an amount that you can afford. It is really important to make sure that not only do you think about whether you can afford it now but whether you will be able to in the future as well. It is worth considering if you have a variable rate loan and what might happen if the prime rate and therefore the rate of your loan goes up and if you will still be able to afford it.
If you can afford the loan repayments, can find a guarantor and can justify the cost of the loan then a guarantor loan could help you. If you have a good credit score though, you may find that there are other cheaper options that might suit you better.