You need a huge sum of money to put down the deposit for a new home or finance your studies, and what you have as savings won’t suffice. So you reach out to your bank for a personal loan, but they tell you your application has been rejected after a long wait. You know the reason is your less-than-perfect credit history.
Upon consulting other lenders, you find out that some are willing to lend to you despite your credit score if you can provide them with a guarantor. But it is not easy to find someone who will agree to bear the burden of repayment in the event that you default. Even family members may be apprehensive about taking on the risk if the amount is high.
If you haven’t been borrowing and don’t have a credit profile, some lenders may be reluctant to take a chance on you. A guarantor loan may become your only resort.
Non-guarantor loans, as the name suggests, are a kind of credit facility that don’t require you to be backed by a guarantor. Most personal loans offered by banks and other mainstream lenders fall in this category, but they will typically require you to present some form of collateral – usually the title deed for a property you own.
In the event that you fail to complete your repayments, the lender will retain the property and auction it off to recover their money. So you need to be double sure about your ability to repay if you don’t want to risk losing the asset.
You can get an unsecured loan (one that doesn’t require you to present collateral) with your bank, but they will be unwilling to grant you approval if you have a poor credit history.
However, some lenders will take on the risk without a guarantor, but they will give you the loan at a higher interest rate because of the added risk. Additionally, you will need to search long and hard for lenders offering such products, as few are willing to cater to such risk.
What Are Your Options?
If you have the kind of credit rating lenders who are unwilling to offer conventional loans, your options may be limited. In the ideal scenario, you would fix your credit rating while accessing the funds you need. Short-term loans targeted at people with a low credit rating offer you this way out.
Such loan products don’t require you to have squeaky-clean credit. But bad credit loans will usually require you to present some form of security. This will leave the lender with something they can use to recover their money in the event you default.
If you don’t have an asset to offer as security, or if your title deed is being held by a bank from which you took a secured loan. You can opt for a guarantor loan, especially if you don’t yet property that qualifies as collateral and have a poor credit score.
This is a less risky prospect for the lender as they will have someone they can hold liable in case you’re unable to complete repayment. But finding someone willing to take on the liability in the event you can’t repay may not be easy. This is because they also risk damaging their credit rating in the process.
Usually, the people most willing to play the role of the guarantor will be close family members or friends. Having to divert their savings to rescuing you might strain your relationship, especially if it negatively impacts their chances of accessing future credit.
The No Guarantor Option
What if you don’t have an asset that you can offer as security and can’t find anyone willing to act as a guarantor? This is where non-guarantor loans come in. They are a form of an installment loan for bad credit that can help you take care of an emergency while restoring your credit score.
A non-guarantor loan can also help you consolidate credit card debt at a more affordable rate without involving other people or risking damaging your relations with your loved ones. The only thing you have to remember while signing up is that the interest rate on non-guarantor loans may be a little higher due to the higher risk for the lender.
Before You Sign The Dotted Line
Before you commit to any kind of bad credit loan, you need to understand its features thoroughly. Be sure you know the terms and conditions and how much it will cost you in the long run. With the right non-guarantor loan, you can shore up your credit, address an emergency, and maintain your family ties.