A guarantor loan is one of the soundest loan alternatives for people with no credit history or are suffering from bad credit. However, that is not to say that there are no negative effects that these loans can bring. Here, we discuss the advantages and disadvantages of guarantor loans.
Cheaper interest rates. With guarantor loans, you’ll be surprised that the rates are more competitive than other types of loans, despite of having poor credit. This is because your loan is backed up by someone with good credit.
Flexible repayment terms. Guarantor loans are well ahead of the competition, especially ahead of payday loans, because of the flexible payment terms. While you have the choice for a short-term loan duration, you are not forced into a contract term that you cannot afford. What matters most to us is your affordability, so you have the freedom to shorten or extend your contract.
Larger borrowing amount. With guarantor loans, you won’t be disappointed with small-time loans. When you need more cash for expensive matters, such as home repairs or vacation, you can borrow more.
Guarantor will be required to make payments if the borrower fails. This is one of the most obvious disadvantage with a guarantor loan. If the borrower fails to pay the loan back, any outstanding amount will be shouldered by the guarantor. Of course, the lender will try all means to collect payments from the borrower before attempting to contact the guarantor, but still, unexpected things may happen and this can be very hassling. If someone asked you to become a loan guarantor, make sure you know the person very well before you agree.
Can cause credit score problems for both applicant and the guarantor in the event of default. A guarantor loan can have worse implications other than cash. If the lender fails to collect payments from both the applicant and the guarantor, their credit ratings will be affected. Of course, this can be avoided by being timely on payments and being cooperative.
Risk of broken relationships. This is by far one of the ugliest effects of a guarantor loan turned out bad. If the applicant fails to keep up with their promise, it can cause problems, both financial, mental, and emotional ones. Relationships can be damaged by broken promises, so before asking someone to become your guarantor, and even before agreeing to become a guarantor, make sure you know what you are getting into.