How Guarantor Loans Can Help You Get Credit
Those who have bad or no credit may find it increasingly difficult to obtain credit or loans. Creditors are often unwilling to give credit to those in situations such those with little to no credit history or poor credit. Assurance can come in the form of a deposit such as with secured credit cards or with a guarantor loan. Whether the guarantor loan is provided by friends, family or a third party company, any credit awarded should be used responsibly and repaid in a timely manner to avoid negative credit ratings.
A guarantor loan means that a third party has guaranteed that should the person obtaining the credit cannot pay or defaults on the amount owed, the issuing company will receive funds to settle the debt. This method of getting credit is used after being turned down when applying for credit cards or loans in order to obtain the desired funds. This is often used by college students in order to pay for tuition, books and other expenses associated with student living. A third party will make promises to pay the amounts needed should the loan or credit be defaulted on.
The third party necessary for a guarantor loan may be a business or a friend or family member. In order to qualify as a guarantor, the person or persons acting as third party need to have a good credit rating and have income that meets the guidelines established by the company offering the credit or loan. Having a guarantor to assist in getting credit does not guarantee that the application will be approved as the third party is subject to the same approval process and can be turned down if they do not meet the guidelines.
Just as college students may seek guarantor loans to get credit, so might young adults seek a guarantor when beginning to establish a credit history. This is most often done by a parent on either a credit card or car loan in order to help the young adult be able to gain approval from the issuing company. By doing this the young adult is able to increase or create their credit history and will be able to gain credit on their own after a time period of good payments have passed.
A guarantor loan may also help with getting credit after a divorce or bankruptcy. In those situations the guarantor will assure the company that the credit will be paid for if the person responsible does not. This can help rebuild a positive credit score, especially after a bankruptcy.