Over the previous few years, the popularity of guarantor loans has significantly increased due to their suitability as credit builder loans for borrowers who find themselves with a less than stellar credit history. Guarantor loans offer a far cheaper alternative to other variations of bad credit loans such as payday loans but as with all credit agreements, it is crucial that anyone looking to make an application fully understands the agreement into which they will be entering.
Lenders who specialise in credit for those with poor credit histories such as TFS Loans offer a myriad of financial options which generally have much higher interest rates attached to their products than when compared to the credit offered by high street lenders, such as banks and building societies. Because the associated APR with guarantor loans is generally much lower than many of their bad credit counterparts, a guarantor loan very often proves to be the best choice for anyone looking for the cheapest form of credit available to them.
Of course prevention is better than cure. A good starting point before taking out your first loan is a bank borrowing power calculator and keep a buffer between what the bank says they will lend and the amount you borrow. That will help prevent you getting too stretched financially.
Perfect for Applicants with a Poor Credit History
It is worth noting that guarantor loans are just one of the options available to borrowers with a poor credit rating but it is worth outlining exactly why they may prove to be the ideal choice in this area.
There are a number of reasons why a potential borrower may have the millstone of a poor credit history around their neck and it is not always related to having defaulted on payments in the past, although this is obviously a common reason for poor credit ratings. Credit ratings can be less than ideal if the borrower has recently moved house or has just taken a new job. It is also possible that if the borrower still lives at home with their parents or has never taken credit out before, their credit rating will also be poor. Regardless of whether it seems to be fair or not, possession of a perceived ‘bad’ credit rating can have a stigma attached to it which is often unfairly given to those who are affected.
Guarantor loan lenders are renowned for considering those who have a less than perfect history because of the presence of a guarantor who will act as security for the loan repayments. Due to this, they are far more likely to make credit available to borrowers where banks would be likely to turn down the application.
Rebuilding Credit History
Credit histories and ratings are based almost entirely on past financial behaviour, so being able to demonstrate that debt can be well-managed is a crucial factor. Guarantor loans are generally repayable on a longer term basis (ranging from 1 year to 5 years) which helps to keep the monthly repayments at a manageable level. This in turn means that borrowers can add a period of prolonged, well- managed debt to their credit histories. Assuming the repayments are all made in full and as scheduled, a guarantor loan customer can fully expect their credit rating to improve over the duration of their loan.