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Is Credit Irrelevant as far as guarantor loans are concerned?

Is Credit Irrelevant as far as guarantor loans are concerned?

The idea of getting a loan can be worrisome, especially for someone with no credit history or a bad credit score on the report. However, there is one solution—Guarantor loans!

This type of financial lending is an unsecured loan given by a financial institution to the individual. But, it requires a second person to act as the guarantor for the individual. These types of loans usually last up to 1–5 years where the individual is allowed to borrow any amount between 1000 to 15,000 pounds.

In other words, a guarantor loan basically relies on a trust based system, just like how it was done during the days before the concept of credit scoring was introduced. This type of loan is most commonly used by mortgage companies and landlords in the UK.

Who can be a guarantor?

A guarantor can be anyone who is not financially associated with you, such as your spouse. Family members, colleagues, or friends can act as your guarantor.

The first thing that lenders will see in your guarantor is their credit history. For any lender, an ideal candidate to give guarantor loan is the one with a guarantor who has a good credit history. This is because of the following reasons:

  • The guarantor is deemed to be able to pay the loan if the borrower fails to do so
  • They are reliable, trustworthy, and efficient with their finances
  • They are less likely to do a fraud or leave town since they will own assets like a house or car

A guarantor loan lender will have the aforementioned factors in mind to evaluate the guarantor with a good credit history report. Furthermore, the lender is at peace and more confident about lending money than giving it to someone with a bad credit history.

Additionally, if you want to get your credit score to move positively, apply for one loan at a time so that you don’t look too stretched in your finances.

The role of ‘credit’ in guarantor loans

Essentially, the credit history of your guarantor will be evaluated for you to qualify as a borrower. However, if you repay on time, it can help you to improve your credit score report as well. This is one of the biggest advantages of having a guarantor loan.

It allows you to make timely payments, which in turn is notified to credit agencies by your lender to highlight your reliability and improve credit score. Therefore, it will open new ways to achieve various other credit facilities and interest rates. This kind of loan is a great way to rebuild good credit.

So, the role of credit is not completely irrelevant when it comes to guarantor loans. Ideally, you will need people with good credit history to play the most essential part in getting you the loan. If you do not have friends, colleagues, or family members with a good credit history, chances of getting a guarantor loan may be out of question.