Continuing this series of blogs, we look at the most frequently asked questions. Here at 1Plus1 guarantor loans we want you to fully understand how a guarantor loan works.
Guarantor loans and mortgages are one way to help someone borrow money if they’re having difficulty getting approved by lenders. As example, this may be a young person with a limited credit history, or someone with a bad credit history. There are risks involved for both borrower and guarantor, so both of you should only go into a guarantor loan agreement armed with all the facts.
If the borrower can’t keep up their repayments, being a guarantor can cost you money as you’ll have to make them! If you’re unable to meet the repayments, you could risk recovery proceedings.
Yes, you will, until the loan is repaid in full.
You can’t get out of being a guarantor once you’ve signed a loan agreement and the loan has been paid out. Lenders won’t take you off the agreement because your credit history, employment status and other information were all part of the approval of the loan.
If you’ve a bad credit history, lenders are not likely to accept you, so it’s unlikely you’ll be able to act as a guarantor if you have a low credit score.
Your credit score won’t be affected providing the borrower keeps up with their repayments. If they fail to make their payments and the loan goes into default, it will be noted on your credit report.
Helping another person to obtain credit can affect your future mortgage applications. Mortgage lenders look at every aspect of your income and outgoings, including debts; because as a guarantor you may have to pay your friend/family member’s debt. Guarantor loans, even though not your debt can have a negative impact when they calculate accumulated debts for affordability. You may find it stops you getting another mortgage.
At 1Plus1 we run a series of checks before approving a guarantor loan to assess whether both the borrower or guarantor will be able to repay the loan. These checks review your credit history and credit score, giving us insight on how well you’ve repaid other types of credit and loans in the past. So, as we’ve said, a guarantor with a good credit score will add credibility to your application. We also run affordability checks to assess how much you can comfortably afford to repay each month.
If someone has asked you to be a guarantor for them, you should encourage them to compare options to make sure they’re getting a good deal. If you end up having to cover the repayments, you want to make sure it’s not costing you more than it could have.