Many people worry about their credit rating and whether what’s on their credit report will stop them from having access to a short-term loan when they need one to cover unexpected bills and expenses.
A credit report is a file about you and your financial history. There are three big companies in the UK that build credit reports on everybody and on every company. Those credit files are then used by all sorts of companies, including short term loan providers who look at the information on file to make a decision on whether to lend you money or not.
If what’s on your personal credit report shows someone who has paid all of their bills and loan repayments on time, your chances of being accepted for more credit are higher. The opposite is true though – if a credit report shows that, from time to time, finances have been a bit of a struggle and you’ve missed the odd payment or two, that reduces the likelihood of your being accepted for a loan or an account with a mobile phone company or utility (gas and electricity) company.
We live in an expensive country – prices have risen faster than wages for most of the last decade. We only need to see what’s happened to the prices of houses and rents too. It’s becoming harder and harder to make ends meet, even if there are two of you in the household both going out to work.
In the last few years in the UK, some finance companies have offered something called guarantor loans.
In this article, Moneypod looks at guarantor loans, who can be a guarantor, and whether you need a guarantor for a short-term loan.
What is a guarantor?
In a guarantor loan, a guarantor is someone who agrees to pay off your loan if you can’t make the payments yourself.
Why would I need a guarantor?
Earlier in this article, we looked at credit reports and how what’s on your personal credit report could either increase or decrease your chances of getting a loan.
If you have a poor credit rating and you have recently been turned down for finance of any kind, including a short-term loan, you might be put off doing so again because no-one likes to be rejected. It’s completely understandable.
A guarantor will normally have a really good credit rating. In addition to that, they are probably in a good place financially too – they might be earning high wages, have some savings put aside, and meeting all of their bills and credit repayments on time and in full.
If you approach a guarantor loan company and:
- You have a poor credit record or you’ve not had a chance to build a credit record, and
- Your guarantor has a great credit record
…you are much more likely to receive an offer of a loan with your guarantor than by approaching a High Street lender (short term loan companies are much more flexible – more on that later in this article).
Who can be a guarantor?
Anybody you like, unless you’re married to or in a civil partnership with them or you have some form of financial tie or responsibility to each other.
The type of guarantor most attractive to a guarantor loan provider will own their own home (or have a mortgage on it), be in full-time employment, have a track record of paying their bills on time and be over 21.
What are the risks with a guarantor loan?
If someone agrees to be your guarantor, the fact that they are a guarantor will not appear on their credit record. However, if you can’t keep up the repayments, your guarantor will have to pay the loan back on your behalf and, at that point, the fact that they are guarantor will appear on their credit record (together with information on their payment record on what’s left on your loan).
If you die, your guarantor will have to pay back the loan.
If your guarantor can not pay the loan back, their credit record will reflect this. The guarantor loan company will most likely take your guarantor to court and apply for a charging order which may force the sale of their home.
Can I get a short-term loan without a guarantor?
Guarantor loan companies get peace of mind by knowing that someone with a good credit rating will pay off a loan if, for whatever reason, the original borrower can’t do so.
They generally tend to be much more risk-averse than standard short term loan providers. Short term loan providers take a much more open-minded view to potential borrowers than guarantor loan companies. Most short term loan providers will consider your credit report but they’re just as interested in who you are now, what your current financial circumstances are like, and whether they think you can afford the repayments.
You don’t need a guarantor for a short-term loan with Moneypod.
Moneypod, a Financial Conduct Authority approved broker, works with FCA-approved lenders – what we do is match up your personal circumstances and the amount of money you’re requesting with the lender we know will be happiest to work with you.
If you want to apply for a short-term loan now and don’t want to use a guarantor, put Moneypod to work for you to find the most suitable short-term loan provider for you. Please click here to start your no-obligation application.