How can a guarantor loan help you build your credit score?
The key to improving your credit score is to make regular, on-time repayments for a financial agreement. But, if your credit is bad, how do you enter into a financial agreement in the first place? Here's where guarantor loans can help you.
Building trust through building credit
Before we examine the potential upsides of Guarantor Loans and what they may help you achieve, let's first look at what a Guarantor Loan is when compared to other forms of lending.
A Guarantor Loan put simply is a loan whereby another party has final responsibility should the loanee struggle to pay the loan back.
This method of money lending though not exclusively, is often a potential route for those with no credit history, or lower credit score.
It gives the provider the certainty of repayment they need to be able to offer applicable loan terms.
The benefits for you
As a loanee, Guarantor Loans can be an ideal way to source your required funds, not only by providing a lump sum that provides the initial financial impetus but also by helping to boost a low credit score.
In essence, if a Guarantor Loan is well managed and all repayments are paid in full and on time, it can be a superb way of bolstering your financial status to a level that then allows for other credit options going forward, which of course can then lead to greater independence in your own financial planning and greater autonomy over your personal choices.
There are many benefits to an improved credit score, including the increased possibility of being accepted for other loans, such as a personal debt consolidation loan which can then be used as a way of repaying the initial Guarantor Loan.
The potential pitfalls
It is important when considering any loan to think about the key requirements from your side that need fulfilling.
Among these are:
The monthly required repayment
How long the loan is for
What APR various companies may offer for their service
When considering a Guarantor Loan, it may be preferable to discuss these key elements with the guarantor themselves prior to any decisions being made as this would help narrow down the potential companies to approach.
Building financial trust through repayment
When a loan is fully paid, providing there are no delays to payments, it sends a strong message in terms of your viability for credit, especially with the same company who will then regard you as a reliable loanee for other credit options, this initial credit relationship is an important one that can go a long to rebuilding your overall financial stature.
Choosing the right loan for you
These days there are many loan types, all of which have their own benefits and drawbacks, where a Guarantor Loan stands out is this ability to quickly, safely, and easily navigate through the financial difficulties of the credit score.
With other loan types, you will often endeavour to start the loaning process only to fall short at the credit referencing stage.
As I’m sure many have experienced, this can be for a number of reasons, some of which may even be related to an address rather than the loanee themselves. It can be exceptionally difficult to take large financial strides in today's world, but a Guarantor Loan is one way of achieving this in quick order and righting your personal finances to a level where you can soon claim financial independence once again.
A final word
While taking out a loan proposes an ideal way to relieve financial pressure or cover important immediate cash needs such as home repairs or medical expenses, it is vital that you be realistic and correctly project the full financial impact on your budgeting for the life of the loan.
Please be certain that the loan in its entirety is manageable both for you and your guarantor and discuss the requirements with them in full transparency.
That said, if all boxes can be ticked then a Guarantor Loan can be the absolutely perfect route for you and your financial recovery going forward.