There are many times throughout our lives when we’re a little short on cash with very few options. We have bills to pay, mortgages to take care of, and the need to put food on the table, but some months can strain finances and result in a build-up of stress and financial fear. Additionally, we can sometimes come across great deals, whether it’s a holiday or a new car, which we don’t want to miss out on but feel we have to due to a lack of savings. In these situations, many people apply for a loan, but others can be scared away from the idea due to a few often untrue myths.
Needless to say, it’s not a good idea to get a loan if you don’t think you’ll be able to afford the monthly repayments. In many cases, you might not be able to obtain a loan from the bank due to a poor credit rating, which is where guarantor loans come in handy. If you know somebody who trusts you enough to guarantee you’ll settle your loan, they can guarantee to make the payments should you be unable to. We’ll talk a little more in detail about this later in the article. However, this article will largely answer the question of: what questions should you ask before getting a guarantor loan?
You may still want to ask specific questions related to your individual application when it comes to getting a loan, but you’ll be able to learn a lot from the following information. You will find that in many cases, the following headings are simply untrue.
It’s Better to Settle Debts Early
Understandably, many people would rather settle their debts sooner rather than later. On the surface, that makes complete sense. After all, why would you allow debts to linger if you’re in a financial position to eliminate them? Surely, it’s better to settle debts as early as possible.
In reality, there will usually be a fee involved with settling debts early that could end up making the total cost of the debt repayment higher than if you continued to settle the debt via monthly payments. However, this will largely depend on each individual person’s case, and the cost will be affected by how early you want to settle. If you settle very early, you might be able to save yourself some cash. If you settle very late, you might have to pay a little extra.
Even though you want to eliminate your debt at the soonest possible opportunity, you may as well choose to pay it via the most cost-effective option. It’s best to talk to your loan provider to find out what’s the most affordable option for your particular situation.
The Truth about Consolidating Loans
It can be extremely stressful having numerous debts that you’re responsible for paying each month. You might have a bank loan, payday loan, credit cards, and store cards on top of your mortgage, but consolidating all of your bad debt into one debt might not be the cheapest option, even if it does make life a little simpler.
On the other hand, you could consolidate all of your loans into a larger loan that you’ll settle over a longer time period, making your monthly outgoings cheaper. In the long run, it’s likely to be a more expensive option, but it might make your life much easier if you’re not so strained on a month to month basis.
Whether consolidating is a good idea for you really depends on your situation. Paying more over the long term might sound like it’s the last thing you want to do, but if you’re struggling to cover your debts each month, it’s very possibly the most ideal option. It’s important to read guides like this if you want to make an informed financial decision.
Bad Credit means you can’t Obtain a Loan
If you have a bad credit rating, you might be unable to obtain a personal loan from the bank. Banks have become increasingly stringent with regards to who they’re willing to lend money to, and that also has unfortunately resulted in interest rates being increasingly higher for those with bad credit. However, that doesn’t mean you don’t have other options if you need a loan.
Guarantor loans are not usually assessed by factors such as credit ratings and histories. They simply require you to find somebody who can guarantee payments should you be unable to make them. You will still need to prove you have a steady income and that you are, in fact, financially capable of covering your own payments.
The guarantor is simply there to provide your financier with peace of mind that they won’t lose their money. At the end of the day, they need some kind assurance given they’re much more likely to provide you with a loan than a bank should you have a poor credit rating.
Guarantors can only be Family Members
You might think that to obtain a guarantor loan, you’ll need a family member to provide you with assistance. It is true that in most cases, people use their parents as guarantors. However, there are many people who, for some reason or another, can’t ask or get their parents to be their guarantors, but that doesn’t exclude them from being able to obtain a guarantor loan.
In fact, many people decide to ask other family members or one of their close friends. You can actually ask just about anybody to be your guarantor so long as they meet the following criteria:
- They need to be a homeowner here in the UK
- They can’t be any younger than 18 or older than 78
- They must also receive a regular income
Many people approach their work colleagues, neighbours, or even landlord to be their guarantor. It certainly isn’t strictly limited to family members.
Once You’ve Signed the Agreement, There’s no Backing Out
A lot of people are terrified that once they’ve agreed to a loan, they’re stuck with it, destined to be paying it off for years to come. Needless to say, if you receive the loan and spend the money, you’re going to have to pay it back, but that doesn’t mean you don’t have some time to reconsider your decision after first receiving your funds.
Reputable loan providers will almost certainly offer a ‘cooling off’ period of two weeks where you’re free to return the loan, cancel the agreement, and pay a small fee, usually equal to the interest accumulated over the time the funds have been in your bank account.
Of course, if you decide at any time before you receive the funds that you no longer wish to receive the loan, you are completely free to cancel.
Getting a Loan Takes Weeks
If you’re desperately in need of money right now, you might be afraid that a loan won’t reach you quick enough. That leads some people to go for payday loans that often come with extortionate interest rates. In reality, payday loans aren’t always a bad idea if you’re looking to borrow a relatively small amount of money for a short period of time, but missing payments can prove to be extremely costly, and the interest rates can be financially crippling if you fail to settle the debt quickly.
However, guarantor loans can often be in your bank account within 24 hours of the financier receiving your application, so long as all of your information checks out and you have provided the details for your guarantor. In addition, applying for such a loan is relatively painless and can be done in less than an hour in the majority of cases.
Financial Advice isn’t Affordable
Most loan companies won’t be able to offer financial advice, no matter what your situation may be. It’s a good idea to seek financial advice before committing to a loan, but many people may think such advice is both difficult and expensive to obtain. The truth is, professional financial advice can be rather expensive, but there are ways you can get some insight for free.
If you need free and independent advice, you can contact any of the following organisations: Debt Advice Foundation, StepChange Debt Charity, and the Money Advice Service.
Of course, getting a loan is a big decision that shouldn’t be taken lightly. You may wish to approach friends and family for a loan who will likely offer you much better interest rates than any finance company can. However, that is not an option for a number of people, but there are ways for you to obtain a loan even if your credit rating is considered poor.
It’s important to remember that you need to be sure you can afford the monthly repayments should you choose to take a loan from any organisation or person, and that means you need to really understand what you’re getting yourself into. For more information on personal loans, click here, or you can contact one of the organisations listed above for independent advice