So you’re considering obtaining a loan but your credit history is poor? Well, there is a high likelihood that the lender will insist that you have a guarantor for your loan. A guarantor loan is simply an unsecured loan where another or rather a second person is responsible for paying off the loan in case you fail to make the repayments.
The advantage of having a guarantor is that even if your credit history is poor, your chances of getting a loan approved by a lender are high.
Now when it comes to selecting a loan guarantor, there are a few things you should consider. Besides having a good credit history, there are a few other important things to consider when selecting one. Choosing the right loan guarantor will not only increase your chances of getting a loan, but it can also help you avoid problems such as auctioning later on.
Here are some useful tips for selecting a loan guarantor.
Consider who to Choose as a Guarantor
Selecting a loan guarantor is very simple. Anyone who trusts you and believes that you will be able to make the repayments on time is a good candidate. However, do to consider choosing a person who is financially linked to you, such as a spouse. The best guarantor candidate can be a family member, a friend, or even a work colleague.
Consider the Guarantor’s Credit Score
The main reason why you’ve been denied a loan is that your credit ratings are way too low. Now if the potential guarantor has a low credit rating too, then he/she is definitely not an ideal candidate.
You need to confirm the status of their credit score before making any major decisions. In this case, you will want to check if the guarantor’s credit score is good because that’s the only way a lender will agree to approve your loan application.
In regard to the credit score, only select a loan guarantor with an excellent credit score.
Consider Guarantor’s Capacity to Make the Loan Repayments
A potential guarantor may have a good credit score but may not in a position to make the loan repayments. This is precisely why you should evaluate their capacity and ability to make the repayments on time.
You need to sit down with the guarantor and discuss their financial status and potential problems that may arise and compromise their ability to repay the loan.
Willingness to Become a Guarantor
For a successful agreement, you and your guarantor must have mutual trust between you. The truth is that being a guarantor is not easy and comes with many risks. The guarantor must therefore have complete trust in you that you will uphold your end of the bargain. In other words, he/she must be willing to help you out; not feel pressured.
Furthermore, if the guarantor repays the loan on time, it will be an added advantage as your credit score will be grealty improved.
Getting a loan with a poor credit score is practically impossible as no lender will risk their money on unpredictable dealings. Having a guarantor is probably the best thing that could ever happen to you. Hopefully, these tips for selecting a loan guarantor will help you choose the best candidate to get your loan application approved.