One of the most important things, as you look to borrow loans for just about anything, is your credit score. A credit score helps to determine if people are eligible for loans. Many people look forward to building and maintaining their credit score to take out loans such as loans, mortgages, home equity loans, and auto loans. Some people can keep good credit scores of 700 and up and enjoy the benefits of getting great deals on loans and credit cards, and cell phone plans.
However, not everybody has a good credit score and ends up having their loan applications denied, which forces many people towards using high-cost credit options like payday loans.
Many people have ended up with inadequate credit because they lack knowledge or good financial habits. Some poor financial management habits that cause poor credit history include paying credit card loans late, not paying at all, or maxing out credit cards.
However, there are also notable differences in credit scores between racial and gender groups. For example, African-Americans have the highest percentage of people with a credit score of 640 or lower at 54%. Hispanics follow behind at 41% and Caucasians at 37%. Women statistically have a pay gap between their male counterparts, and that could explain debt and higher credit utilization. About 2 out of 5 women between the ages of 18 and 39 claim the credit hurts them more than helps them. Situations like this not only take away the ability to qualify for loans or credit cards. Housing and job opportunities could also be denied from bad credit.
Poor credit history is caused by a myriad of factors and can happen to anyone. But there is no need to turn to payday loans or high-cost installment loans when an unexpected expense comes up. Guarantor loans make it possible for people who have a poor credit history to get affordable loans.
How does it work?
A Guarantor loan means that a guarantor will provide a guarantee for the person taking the loan. With this arrangement, the guarantor is promising to repay the borrower's debt if they default on their payment. The guarantor is required to be a legal US resident with a good credit history.
Because Guarantor is not a co-signer, it means that the loan is not going to be reported on their credit report as long as it’s in good standing. This means that providing the guarantee is not going to affect their credit score or their ability to borrow if the borrower keeps making regular loan repayments and the loan is not in default.
Also, lenders like Trustic, provide additional incentives to Guarantors. For example, if the borrower makes 12 consecutive monthly loan payments on time, Trustic releases the guarantor from their obligation, and the loan will turn into a regular personal loan.
Benefits of guarantor loans
There are different benefits of having a guarantor loan. The main one is that people who are not considered creditworthy can secure an affordable loan to accomplish their dreams or manage an unexpected expenditure.
It is an excellent way to empower people. Not everyone will have a good credit history, so it is good that the guarantor can help them obtain the loan. Guarantors are not lending their own money. They are only required to sign the agreement, and then the lending institution will provide the funds for the loan. The borrowers also benefit from being able to repay in monthly installments and build their credit history.
However, you should only guarantee a loan for someone you know well as you will be required to repay the loan if the borrower cannot do so. However, many people who have taken out guarantor loans have successfully repaid their loans without any trouble to the guarantor.
How to find a guarantor
A guarantor has to be an adult family member, colleague, or friend. They must prove that they have a good credit history and can stand security for the loan. A guarantor has to trust the borrower before signing the guarantor agreement.
As with any credit decision, it’s important to ensure that the loan payments are affordable to the borrower before taking on the loan. This would ensure that there are no payment difficulties down the road.
In conclusion
People often feel stuck in a pit of hopelessness when they cannot get loans due to low credit scores. But guarantor loans make it possible for persons with poor credit history to secure the affordable funding they need to achieve their financial goals.
Additional reading:
https://www.cnbc.com/2021/02/09/41percent-of-younger-women-say-their-credit-score-hurts-more-than-helps.html https://www.cnbc.com/2021/01/28/black-and-hispanic-americans-often-have-lower-credit-scores.html