What If a Condition of My Being Approved For a Loan Requires a Guarantor?

When you apply for a loan there are a few things that are considered when underwriting, or reviewing your loan application:

* Affordability: Can you afford to repay the loan. The lender will look at your income and monthly expenses, and see how affordable to the loan is for you to repay.

* Credit score and credit history: This is your credit report and how you have repaid your accounts in the past, and the present. It also shows what open accounts you may have, and are currently repaying.

Your credit score, is a numerical value assigned to your credit report based on things such as how you repay your accounts, the type of accounts you have, and the balances on those accounts.

A high credit score is good, and improves your chances of being approved for a loan. A low credit score can reduce those chances of being approved.

This does not mean that all loans are approved or rejected just on credit scoring. Some borrowers may not have a credit history, this may be the first loan they are applying for.

Some borrowers may have had credit problems in the past, which has caused their credit score to drop, but they have cured or taken care of those credit issues and are ready to move on.

In some instances borrowers, and lenders a like, get too concerned about credit scores, as again, it is only a number.

You know you can afford to repay the loan, you can show/prove on paper you can afford to repay the loan, if you had bad credit in the past, it is just that, in the past.

This does not mean someone with bad credit or no credit can not get a loan. There are loans available to those with bad credit. You can even be approved for a mortgage if you had bad credit in the past, there are just a few things you need to be aware of and follow-up on.

Even someone who has good credit and a good credit score, can have conditions issued in order to be approved for a loan.

One condition that is used for those borrowers that may have bad credit, and even those borrowers with good credit or no credit, is the lender asking for a guarantor.

A guarantor is similar to someone co-signing for the loan. A guarantor is someone who will be responsible for the loan payments, should the borrower fail to pay them.

If the borrower misses a monthly loan payment, the guarantor is then asked and required to pay that payment.

It may be that the borrower has run into a rough financial patch and for a couple of months needs help in paying the payments, and then can resume paying them.

The guarantor is there as insurance to the lender that the loan will be repaid.

Who Can Be My Guarantor?

The next question many people ask is, who can be my guarantor?

A guarantor for a loan can be a family member, close friend, work colleague, anyone who knows you, and knows you will repay the loan.

A guarantor cannot be someone you have just met, or an acquaintance you know from the neighbourhood, or someone financially linked to you.

This doesn’t mean a spouse or partner cannot be a guarantor for their respective partner or spouse, but if you have joint accounts and are financially linked, then they cannot be a guarantor.

Also, guarantors do not always need to be homeowners. It can be helpful if they are, but not always necessary. Having good credit and affordability as a guarantor can be just as important.

How to Find a Guarantor

Finding a guarantor is as easy as looking at your family and friends and those that know you well.

If you think you may require a guarantor for a loan, such as you know you have had bad credit in the past, it is always best to have a guarantor lined up and ready, as it makes the loan process go smoother and quicker.

If you are unsure if you will be required to have a guarantor, you can always discuss it with a family member or friend, just in case.

As to what is expected of them as a guarantor, they will need to provide their details, and go through the usual credit checks just as a borrower would do, and may be asked to provide pay slips, wage statements, and possibly bank statements.

The lender should also provide the guarantor with a copy of the loan agreement, outlining the terms of the loan, and also outlining their responsibility as a guarantor.

Should the borrower miss payment or default, notices will also be sent to the guarantor to keep them updated on the status of the loan.

Should the borrower default on the loan, the lender well then expect the guarantor to bring the loan current and pay the payments that are due, and between the borrower and guarantor, continue to pay the remaining payments due.

In severe cases or default, and if the guarantor also does not pay the payments, the guarantor’s credit can negatively impacted as well.

What if I Cannot Get a Guarantor?

If you cannot find a guarantor, someone who believes you will repay a loan and sign as guarantor, then you need to ask yourself some had questions.

One question to ask yourself, is borrowing money is the right course of action for me?

What other options do I have besides taking out a loan?

If you are seeking a loan to buy a car, or some other item that can be used to secure the loan, you may wish to try and save up a larger deposit. The larger your deposit, the less you need to borrow, and the less risk the loan is to a lender.

You also may want to discuss your options with the lender. Maybe a smaller loan amount, or shorter term, may make the loan more attractive to the lender.

Then there also is looking to increase your credit score.

Remember, time is the great healer when it comes to credit issues. The longer your bad credit is in the past, the better, in addition, by setting up a savings account and showing a regular pattern of savings, and affordability, it can strengthen your chances of being approved for a loan, possibly without a guarantor.

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