What To Consider Before You Apply
The amount you can borrow from a guarantor loan can be life changing as you can use the money for a new home, wedding or vehicle. Since it can be quite a big decision and involve you and your guarantor for several years, it is imperative to consider the points below before rushing and making an application
1.Do You Need It?
Guarantor loans are helpful for those looking to borrow a few thousands pounds but have a less than perfect credit score. It helps the person get the finance they need by using an extra person as security to guarantee their loan and this person typically has a better credit rating which you can benefit from.
However, openly speaking, guarantor products are more expensive than other alternatives available. With a representative APR starting at 39.9%, other products can be used for less such as credit cards for bad credit (24.7% APR) or borrowing from a credit union (26.8% APR).
If your parent or spouse is going to act as your guarantor, they will still be required to sign a legally binding document and will be semi-involved for the entire loan duration. So you must also consider whether the family member could lend you the money directly and you could always pay less interest or no interest at all. It is always essential to consider the alternatives before applying for high interest finance.
2. Who Is My Guarantor?
If you decide that a guarantor loan is the right one for you, you can help your application get moving faster by having a guarantor ready early on. This is usually someone that you know very well and has a good understanding of your financial situation. So it is not surprise that most guarantors are family members such as parents, siblings, spouses or a close friend. See list of potential guarantors here.
The guarantor is required to co-sign the loan agreement stating that they will be willing to repay on your behalf if you do not keep up with repayments. It is not a long contract which requires a lawyer to oversee it, but instead an online document of only 2-3 pages and can be electronically signed by an email link and SMS pin code. The guarantor will also be required to provide some information over the phone with the chosen lender and in some cases provide proof of income.
Your application will be processed much quicker if you have already found your guarantor and discussed what is involved. So you can apply together and get moving.
3. Do I Meet The Criteria?
The lenders we feature on our comparison table each have a similar but also slightly different criteria. Loan providers typically need the borrower to be over 18, living in the UK, in employment earning at least £500 per month and for their guarantor to be over 25 and have a good credit score.
To speed up the application process, it can help if you have recent copies of your pay-slips ready and also an idea of your expenses so that the lender can carry out their checks effectively.
To be more specific, there are some lenders that only fund if you have guarantor that is a homeowner (TFS Loans). This is based on the idea that owning a home gives the lender more security that the guarantor could raise funds if need be and be easier to contact if they have a formal residence. Also, being a homeowner means that you would have gone through the traditional mortgage application process and demonstrated a solid income and credit history. This does not imply that all homeowners have good credit scores because they can also be victims of debt, but initially to get a mortgage requires a strong credit rating.
Other lenders will be able to lend to you if you have a tenant guarantor (Amigo, Buddy, Trust Two) but it is noted that the cost of the loan can be considerably more, because there is now a greater risk of default. Notably, UK Credit’s homeowner guarantor product is 39.9% APR, compared to their tenant product at 59.9% – so for the sake of saving on your loan, there is a strong argument to find the best guarantor possible.
4.How Much Do You Need?
It is most common for customers to try borrow as much as possible, which is why our lender TFS Loans is so popular with them maximum borrowing facility of £15,000. However, customers must remember that the amount that they borrow is linked to their income and affordability and they are required to repay the amount they draw down and interest too.
Therefore, it is sensible to have a real think about how much you need to borrow. You can look at the specific purchase or reason for taking out a loan in the first place. Then, you need to think realistically about how much you can afford to repay each month without falling into financial difficulty. So whilst you may want to borrow the maximum amount, perhaps half or a third of it will be sufficient for your purchase and allow you to repay on time each month without any complications.
5. How Long Do I Need The Loan For?
With guarantor loans available for 12 months to 84 months (1 to 7 years), you need to think carefully about how long you want the loan for. Even though the payments are spread out over a longer period of time, the longer the loan is open for, the more interest you will pay.
For this reason, it does not make financial sense to borrow the highest amount for the longest period of time, because you will only be accumulating more interest. Once again, you need to look carefully at your finances, income and outgoings to determine how long you need to borrow for. If you have a good budget in place and a timeframe of when you will be paying it back (e.g when you sell your home, get a bonus from work), you will be in a much better position financially as a result.
If you think that you will be getting a raise at work, selling your home or receiving an inheritance, you can use this boost in income to repay your loan off early. All the lenders we work with allow you to clear your account before the end date and because you generate less interest, you can end up saving a lot of money when you do.
6. How Will An Application Impact My Credit Score?
Every time you make an application for a loan product, whether it be a guarantor loan or credit card, the application itself may have an impact on your credit score. This is because lenders will use one of the three main credit reference agencies in Call Credit, Equifax or Experian to check your credit file and when they do, they will leave a ‘search footprint’ on your file to prove that they have visited your account. It is like a record of the visit.
However, it is noted that having several applications made in a short space of time can make you seem financially desperate and raise warning signs to future creditors. Therefore, it is worth only applying with one lender at a time, rather than several companies on the same day, as this could have an impact to your credit rating.
For this reason, we are pleased with the application process that we offer on Guarantor Loan Comparison. Every application goes to a dedicated underwriting team who will help process your loan. The team works with all the lenders and can therefore put you in touch with the best one according to your criteria and requirements. This means that you do not have to make numerous applications and risk any damage to your credit score, simply because we are helping you find the best lender for you.
Prior to applying, you can always check your credit score for free using the different websites available. This can give you an idea of whether there is anything currently affecting your credit rating such as store cards, missed loan repayments or failing to be on the electoral roll. You can take the various steps to improve your credit rating and this could improve your eligibility for a loan with our lenders or any alternative products.