Many people have trouble getting credit, but one solution is to use a guarantor. A spouse, friend, or family member could do this. But you should know that there are risks involved in being a guarantor for someone else's debt. Here we will talk about who is eligible to serve as a guarantor for a loan.
What does a guarantor do?
When someone acts as a guarantor, they promise to pay off another person's personal loan, rental agreement, or even mortgage if the borrower doesn't pay as agreed. They promise to pay the borrower's loan payments or even pay back the whole loan if the borrower can't.
If you are willing to be a guarantor for a loan, you will have to sign a contract with the person who is getting the loan. Since being a guarantor is a kind thing to do, you should know everything there is to know about the risks and responsibilities that come with it.
Pros of being a guarantor
You could help a close friend or family member who is having trouble getting credit on their own by guaranteeing a loan for them.
Most of the time, a guarantor is a close friend or family member of the person taking out the loan. This person might be a parent, an older sibling, a godparent, or a close friend. If the borrower makes all of their payments on time, this could also give them a chance to raise their credit score.
Who can sign as a guarantor?
Most of the time, if you want to be a loan guarantor, you will need to:
- Be above 18 or 21 and under 75.
- Have a history of being responsible with money.
- Have a residence in the United Kingdom as well as a bank account in that country.
Homeowners can be guarantors even with a mortgage. But lenders might have different requirements, so before you agree to be a guarantor, you should look closely at the details. In case you do not like the conditions of the loans, you can also go to loan agencies in Ireland.
Some lenders, for example, say that you and the person who wants to borrow money can't have any kind of financial relationship, like having the same bank account.
This could hinder gatherings. On the other hand, other lenders accept partners, but they do more checks to ensure that getting a loan won't put too much financial stress on either party and won't hurt your ability to pay back the debt if your partner doesn't.
Is there a credit check on the guarantor?
The lender will check your credit if you promise to pay back a loan. This is a summary of your financial history at a high level. If the borrower doesn't pay back the loan as promised, or if the debt is transferred to you and you don't pay it back, this will hurt your credit score.
If you're thinking about being a guarantor, you should first think about whether or not you might need credit, like a mortgage, in the future. This is because lenders will consider the guarantor loan part of your personal finances, making it difficult to secure credit.
Risks of being a guarantor
The most important thing you should do is probably to think about what might happen if you are a guarantor. It's easy for the person you're helping to put pressure on you to sign a guarantor agreement, but before you do, it's important to make sure that the terms are also good for you.
Having to pay back loans that are still out there
As a guarantor, you must repay the obligation. If you aren't sure that you can make the required payments, you probably shouldn't agree to be the other person's guarantor. Or you consider personal bad credit loans in Ireland as well.
Even if the borrower has good intentions, there is always a chance that they won't pay back the loan. Then you must repay the loan.
This includes the loan's principal amount, interest, and any extra fees that may have been added because payments were missed.
It could affect your credit score
If the person you are helping to make payments for doesn't pay back the loan, it could hurt your credit. You must repay the debt as a guarantee.
If you don't try to make up the difference after being told about the late payment, your credit score will go down even more.
How many different types of loans can I back?
You can be a guarantor for many loans if you can show that you can afford the payments and have a good credit history. But keep in mind that any loan puts you in a certain amount of financial danger.
Before agreeing to be a guarantor for many loans, consider if you could make all of the monthly payments if they were all missed at once.
Conclusion
If you need credit but don't have anything you can use as collateral, you might want to look into getting a guarantor.
Borrowers who have a low income, bad credit, or no credit history may have a hard time finding lenders who will give them a loan without a third party who will put up their own money as security. This is true for first-time borrowers.
But a person doesn't always need to have a bad financial history or a low credit score to need the help of a guarantor.
People who have trouble finding a lender who will consider their situation may find that guarantor's help. But guarantors can also assist family or friends acquire a bigger loan or better terms and prices. As the borrower makes payments, the guarantor builds credit. But keep in mind that guarantor loans usually cost more than other ways to borrow money. Most personal loans have interest rates that are a lot higher than those of other kinds of loans. So consult with a financial advisor before making a decision.
