No doubt, if you have bad credit, you’ve probably entertained the idea of going for a guarantor loan. With your options dwindling and high street banks unwilling to approve you a loan due to the state of your credit score, the allure of a guarantor loan might be irresistible. Though this form of loan is mostly seen as new, the fact of the matter is that it has been around for a quite a long period of time. Look at it this way. In the past, if you wanted to get a small loan from someone and was known to have a rather unpredictable repayment history, a good word from a reputable individual could tilt the scale in your favour. Guarantor loans follow the same line of thought.
A guarantor loan is in essence a type of loan where an individual with a poor credit rating can be approved for a loan provided that they present a person with a good credit rating as their guarantor. In simple terms, the loan works in such a way that should the borrower default or fail to repay the loan, the guarantor is liable to repay the loan up to the last cent. This type of loan has become quite popular no doubt but the soaring in popular has not been without misconceptions. There exist a lot of myths, false beliefs and misconceptions regarding guarantor loans. Today we are going to dispel some of the common myths associated with guarantor loans.
Myth 1: Interest rates associated with guarantor loans are exorbitant or extremely high
While there might be some semblance of truth in this claim, to take it as gospel truth without taking a look at other alternatives is foolhardy. There are indeed other types of loans that charge way higher interest rates than guarantor loans.
For instance, the average APR for logbook loans is 400%. The average APR for payday loans is 1000% and it’s not uncommon to see lenders that even charge up to 1500%. Compare that with the average APR for guarantor loans that averages 40-50% and you will understand that the assertion that guarantor loans are the most expensive is nothing more than a fallacy.
Myth 2: Guarantor loans reflect on the credit file of the guarantor
This is not true. It is imperative to note that guarantor loans are taken in the name of the borrower and the only time that they can reflect on the guarantors credit file is in the event that both the guarantor and borrower fail to repay the loan. That said, they are indeed a perfect way of repairing the borrower’s credit score if managed well.
Myth 3: Under a guarantor loan, you only have access to a small amount of money
As compared to doorstep loans or even payday loans, this assumption does not hold water. As we speak, a person can apply for up to £10,000 under a guarantor loan. This is by all means not a small amount of money. Increased competition and the need by lenders to achieve a competitive edge has seen competitive interest rates not to mention high amounts of money extend to borrowers.
Myth 4: You can only ask a family member to be your guarantor
This couldn’t be further from the truth. The fact of the matter is that you can present anyone as guarantor provided that they have an excellent credit rating and willing to shoulder the responsibilities of repaying your loan in the unlikely event that you default.
In light of the above, it is always important to have facts before making a decision that could ultimately change your financial fortunes. When it comes to loans, ensure you have all the right information and make an informed decision.