As the economy continues to recover from The Great Recession, getting a loan has proven difficult for some people, especially if their credit file took a hit during the aftermath of those tough years.
One type of lending that has been getting a lot of media coverage recently to cater for borrowers with bad credit histories is guarantor loan lending.
If you are thinking about taking out a guarantor loan, here are a few pros and cons for you to consider.
Pros of Guarantor Loans
So, what are the pros of guarantor loans? Well, one big pro is that they might enable you to get a loan when all other borrowing options are unavailable.
Sometimes you might need a loan for a very valid reason like if you’re car has died, for example. In this situation, it may be a case for some of taking the decision to get a loan or else losing their job.
If you are facing a situation like this and you have a bad credit history, then a guarantor loan might prove to be a bit of a lifesaver and stop you having to turn to some other form of lending which might have quite crazy rates of interest attached.
Sticking with our example of needing to buy a car, another pro of a guarantor loan over something like bad credit car finance, for example, is that having cash in your hand from a loan might help you to find a better deal on a car and save money as a result, rather than having to stick to choosing a car from a certain car dealership where bad credit car finance is available.
Cons of Guarantor Loans
So, what are the cons? One obvious con to taking out a guarantor loan is that you are going to have to ask for somebody else’s help in order to be able to secure one.
This also might involve explaining the reasons why you can’t get the credit yourself in the first place, not great if you’re having to go cap in hand to your parents! So, you may have to swallow your pride a bit here and ask for some help.
Another possible con could be the interest rates on offer. While the interest rates available on guarantor loans are much lower than the alternative of say, a payday lender, they are certainly higher than those offered on a personal loan from a mainstream lender like a high street bank.
Again, though, if it’s the difference between having transport and keeping hold of your job or not, then this may be something that you have to live with for now and just try hard to improve your credit file going forward, so that you have more options available in the future.
Do the Pros Outweigh the Cons?
As we can see, there are many different pros and cons to guarantor loans and we’ve mentioned just a few here. In the end, though, the decision as to whether the pros outweigh the cons will often depend on how much you need the loan and also how well a guarantor loan compares to the alternatives you have available to you.