Now you can listen to our blog post, "How to Get a Farm Mortgage in…
Now you can listen to our blog, “Guarantor (Cosigner) Loans: How to Get?” while on the go.
If you have bad credit, you may have difficulty getting a loan. Why? Before lending you money, lenders want to know that you have a good credit history.
So, what are your options if your credit isn’t so great? A guarantor loan is a viable choice. Continue reading to discover more about guarantor loans, as well as the benefits and drawbacks you should consider when applying for one.
What is a guarantor loan, and how does it work?
A guarantor loan is a form of loan in which a “guarantor” backs the loan and is responsible for payments if you default on the loan. From the lender’s perspective, having a guarantor co-sign the loan and be held liable for the debt reduces the risk.
Giving a loan to someone with bad credit might be considered a high-risk enterprise by lenders who want to make sure they are paid. As a result, providing a loan to someone with bad credit with a guarantor – someone who may be held legally accountable in the event of non-payment – is a much better investment.
You can require a guarantor for a variety of reasons. If you require funding, you will most likely seek approval for a loan on your own. However, there are a variety of reasons why you can be rejected and require a guarantor to increase your chances of approval.
3 Reasons You Need a Guarantor
1. You have a bad credit rating
You may be a less suitable loan candidate if you have bad credit and a history of missing payments or heavy credit utilization. If you apply for too many lines of credit in a short period of time, lenders may view you as a risky borrower who relies excessively on credit.
2. You don’t have a track record of good credit.
You can be turned down for a variety of reasons, not just bad credit. You’re a risk to a lender if you don’t have a credit history that can be verified. If a lender is unsure about your ability to make timely payments, a guarantor may be required.
Your credit report and credit score show your “creditworthiness,” or how likely you are to repay a loan based on your creditworthiness. It can be difficult for a lender to trust you and lend you money if you have nothing to show.
3. Your salary is insufficient to cover the loan amount.
Some lenders may examine your earnings to see if they can support the amount you’re borrowing.
If your income falls short of the lender’s requirements, you may be turned down and require a guarantor.
Having a guarantor can help you be approved for the loan you need, regardless of the reason. You can focus on improving your credit as well if you can locate a suitable guarantor to assist you to acquire loans.
How do Guarantor Loans Work?
A guarantor works with an applicant to secure a loan. If you want to get a loan but don’t have good credit, verify if the loan type you want would accept a guarantor.
You may wish to apply for personal loans or other types of loans, but keep in mind that you may not be authorized on your own. In this scenario, a guarantor on the loan can assist you to boost your chances of getting authorized.
If a guarantor is possible, identify a suitable individual to assist you. Typically, guarantors who co-sign loans are family members or friends. If someone agrees to act as a guarantor, you can include them in your loan application to increase your chances of approval.
You are still responsible for the loan and it is in your name. You will have to repay it. However, if you miss payments and fail on the loan, your guarantor may be required to reimburse the loan. You and the guarantor probably don’t want this to happen, so discuss the loan and establish clear boundaries before you get into this agreement.
To begin, make sure you apply for a loan that you can repay on your own to protect yourself and the guarantor. Examine the amount you’re borrowing as well as the terms of repayment. Finally, verify sure the monthly payment amount fits into your budget so you can keep your loan in good standing.
Taking out this loan and making on-time payments can help you by demonstrating a good repayment history. As a result, your credit score may improve.
What you should know about guarantor (cosigner) loans
If you desperately need a loan but can’t qualify on your own, having a guarantor on your side can be a lifesaver. However, there are a few things to think about before taking out a guarantor loan.
First, have a thorough discussion with the guarantor about the loan and its repayment. Will you be responsible for the entire repayment or will he assist you? Also, if the guarantor is simply using his good credit to help you co-sign the loan and get approved — but not much else — things could get complicated if you default on your payments.
Keep in mind that because the guarantor is legally accountable for the payments, if you default on the loan, your relationship may be jeopardized. If a family member is acting as a guarantor, make sure you both understand the implications and benefits.
It’s also important to note that guarantor loans can have high APRs. Why? Because even though there is a guarantor, the loan APR is determined by the primary borrower’s credit profile. This means that your bad credit may result in a high APR, which means higher-than-average interest charges that increase the loan’s cost.
The Bottom Line
At Lionsgate, we specialize in helping people obtain funding private mortgages for land purchases as well as for other real estate transactions. If you are looking to buy land in Canada, get a mortgage or apply for a loan, leave us a message and we will try to connect you with local realtors and sourcing for financing.
If you found this article helpful, please share it with someone you care about. Also, visit our blog to read similar articles on mortgages.