Getting the funding you need can often seem impossible if your credit report shows a history of late or missed payments.
That said, most mainstream lenders look closely at applicants' credit scores before making decisions. Unfortunately, any dings or issues might cause an automatic rejection of a loan.
However, guarantor loans present a potential path to financing for those with less-than-perfect credit through the help of a co-signer. When traditional ways of borrowing money like bank loans and credit cards won't approve you due to credit problems, guarantor loans offer an alternative lending option.
This type of loan allows a person's application to be jointly submitted alongside a credit-worthy individual known as a guarantor. The guarantor plays a vital role by pledging to repay the lender if, for any reason, the primary borrower cannot make their payments as planned.
Therefore, this article will explore how guarantor loans can help you secure financing with bad credit.
1. Improved Loan Terms & Rates
One key advantage that guarantor loans may offer compared to other options open to those with bad credit is the possibility of more competitive interest rates. Guarantor loans tend to have annual percentage rates lower than you might find with alternatives like credit cards or payday loans.
Therefore, lenders feel more comfortable pricing guarantor loans closer to the levels seen on regular unsecured personal loans. Additionally, the guarantor provides that extra layer of reassurance for repayment.
This can translate into paying less over the loan term when you factor in the interest costs. More attractive rates make the monthly installments manageable on your budget. The loan terms, such as available loan amounts and repayment periods, also tend to be more flexible with guarantor loans.
For example, you may be eligible to borrow larger sums to consolidate multiple existing debts into one loan. Some lenders allow repayment terms to be extended several years, which keeps your regular payments inexpensive.
2. Provide Larger Loan Amounts
In addition to favorable interest rates, guarantor loans can potentially provide larger loan amounts than other options for borrowers with bad credit histories. Since the guarantor acts as additional security and payment backup for the lender, they feel comfortable approving higher balances.
Having said that, when you've had credit issues, such as missed or late bills, banks and conventional lenders may only be willing to offer relatively small loans, if any at all. Your risk level is higher due to past payment problems on your report. Any loans you can access are likely to be on the smaller side as lenders seek to limit their exposure if repayments become an issue again.
However, by adding a guarantor to the application, lenders may feel more at ease providing larger loan amounts than usual for applicants in similar credit situations. Having the extra assurance that the guarantor promises to cover costs if needed allows them to safely extend bigger lines of credit balances. While sized to individual circumstances, guarantor loans commonly range from £1,000 to £25,000 or more.
3. Build a Credit History 
Successful repayment of a guarantor loan also enables credit repair and future financial independence for those with bad credit histories.
This ongoing on-time payment information helps to gradually rebuild a positive credit profile over time for individuals struggling with bad credit issues in their past, like missed payments or defaults. Each accountability shows lenders your commitment to honoring obligations responsibly and can help counter negative marks still on reports from past credit problems.
Managing the guarantor loan adequately and re-establishing a habit of fulfilling financial commitments allows people an opportunity to restore their creditworthiness following previous bad credit episodes. It demonstrates to lenders that individuals have learned from past credit mistakes and can now handle borrowing reliably.
With improved records, those with a bad credit history may later qualify independently for different loans, credit cards, or other offers without guarantor involvement.
4. Avoiding Costly Alternatives
If you've been turned down for loans or credit cards due to bad credit problems, it can feel like expensive, high-cost alternatives are your only option to get needed funds. However, guarantor loans provide a more affordable way for those with an inadequate credit history to secure financing than other often risky choices.
When traditional lenders don't approve someone due to issues on credit reports like missed payments or prior defaults, it's easy to feel desperate to find cash and turn to alternatives like payday loans or credit cards with excessively high-interest charges.
While these may provide temporary relief, their costs can become burdensome and harder to repay. Rolling over multiple short-term debts or paying only minimums on credit cards with sky-high rates risks worsening your overall financial situation.
Getting approval via a guarantor loan when you have bad credit allows borrowers to avoid much steeper costs while still accessing the money required. Guarantor loans typically feature fixed interest rates between 12-49% APR and flexible terms that make regular repayments more manageable than other choices. Larger loan amounts may also be attainable compared to payday loans, which limit funding to just a few hundred pounds.
Key Takeaway
Guarantor loans can help during emergencies or debt consolidation, even for those with credit issues. By getting a co-signer with good credit, near-prime, and subprime borrowers can access fair loan terms while building their credit prospects.
Using a guarantor loan lets applicants receive the money they need now when credit barriers exist alone. But making timely payments also accomplishes the future goal of credit restoration.
That said, guarantor loans succeed in addressing both immediate financial requirements and long-term credit improvement aims as long as borrowers responsibly use the funds and pay on schedule.
