As a society, we have spent a significant period of time being negatively impacted by the current financial environment. Many people have lost their jobs or homes and are generally struggling to make ends meet. With employment falling and adequate wages hard to come by, it is not surprising that this has coincided with an increased level of personal debt because if you are not careful, it is very easy to end up spending more money than you are making. Helping a friend or family member get their feet back on firm financial footing can be a rewarding and generous undertaking and with the creation of new forms of credit such as a guarantor loan, this option does now exist. Failing to weigh up the consequences of entering into an agreement like this is something that you could regret in the future and you must ensure you have a full understanding of the agreement before signing anything.
What is a Guarantor for a Loan?
Acting as a guarantor for a friend or family member wanting to apply for a loan can make the difference between the application being granted or rejected. However, it’s not a decision that should be taken lightly. Being a guarantor is very similar to applying for your loan but with few benefits to your finances. When you become a loan guarantor you take on responsibility for someone else’s loan and it will be your role to increase the lender’s confidence that any money they lend will be repaid in full and on time. This means the guarantor will be undertaking a legally binding commitment to cover repayments if the original borrower is unable to. For this reason, parents are often popular choices to act in this role for their children. While this can be a really good way to help your family, if you’re considering it you need to be fully aware of what you’re signing up to before you agree to be a guarantor. Bad credit cash loans, such as guarantor loans, require the guarantor to repay the entire amount of outstanding debt, should the original borrower be unable to pay. This makes the guarantor jointly liable for the loan and will pursue them for the debt should the main borrower fail to make repayments as and when they are scheduled.
How Long is the Guarantor Liable For?
Acting as a guarantor is a long term financial commitment that will last for the duration of the loan. It is, therefore, crucial to weigh up whether you have the financial freedom to act as a guarantor for the full duration of the loan agreement. Do you expect your income to drop before the loan matures and will this place a greater financial burden in 5 years time? You will need to bear this in mind when deciding if it’s something you should do.
Can You Afford The Repayments?
The vast majority of bad credit unsecured loan schemes such as guarantor loans will require you to make the loan repayments should the original borrower default. In most cases, this doesn’t happen, but you need to be confident that you could afford to make the payments should the worst happen. For this reason, the lender will view your credit rating to ensure you are in a position to make the repayments should the need arise. You also need to ask if you are happy to pay should the original borrower get into financial difficulty. Could you cope if they lost their job and couldn’t pay on time? While no one entering into a guarantor loan plans to default you still need to plan for the unexpected.
Can it Affect My Credit Rating?
If all runs smoothly, being a guarantor will not appear on your credit report and subsequently shouldn’t have any impact on your credit rating. However, if the borrower falls into payment default then this will be added to your credit report and if the account still isn’t paid, a county court judgement could also be lodged against your account. This means that as long as the account is paid on time, there will be no need for you to do anything and your role as the guarantor will never come into the public domain. It’s only if something goes wrong and you fail to pay that your credit history will be damaged.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam