Using a guarantor to get a van loan
Getting a loan can be difficult, particularly if you have a bad credit score, or if you don’t have any credit record at all. If you find yourself in this situation you are likely to find that you will not be able to get a mainstream loan and you might feel that you have few options left available to you. You are probably aware of the direct lender loans that are available, but you are also probably aware of the very high interest rates that they carry with them and also the cap of £5000 on your borrowing. Although these loans can be relatively easy to get, in comparison to mainstream loans, they are not necessarily your only option.
What is a guarantor loan?
In simple terms a guarantor loan is one where you find someone to provide a guarantee that the loan repayments will be made if you are, for some reason unable to repay them. You guarantor is effectively backing you up and is providing reassurance to the lender that they are not taking an unnecessary risk in providing you with a loan. Your guarantor does need to understand that in the event that you default on a payment they will have to make the payments for you and will be responsible for the rest of the loan to be paid off.
What are the advantages of a guarantor loan?
The main advantages of a guarantor loan to buy a van are that you will be able to borrow more than if you take out a direct lender loan. With a guarantor loan you can take out up to £7500 because of the lower risk that lenders perceive you to be. You will also benefit from lower interest rates that if you took out a direct lender loan. With a guarantor loan you can expect to pay interest of between 40% and 50%, however most loans are nearer the higher of those two figures. If you are able to make all of your payments on time and complete the repayment of the entire loan you will actually start to rebuild your credit score, so you can get some positive effects out of taking out this type of loan, which will then potentially make it easier for you to get better loans in the future with lower interest rates.
What are the disadvantages of a guarantor loan?
The main disadvantage of a guarantor loan is that you need to find someone who is willing and able to act as a guarantor for you. If you are able to make your repayments on time every week, then your guarantor will not see anything of your loan. However, if you are unable to make your repayments it then falls to your guarantor, and so they have to be in a position to be able to afford the repayments instead of you. You should also bear in mind that should this happen you may affect the relationship you have with your guarantor.
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