Having recently experienced its worst times for over 20 years, the UK's economy is still in an unstable state and many households are still feeling the effects of this. While the cost of living is continuously rising household incomes are a stagnating and in some cases even shrinking. This has meant that the pressure on household budgets has increased dramatically.
In situations like this when finances are tight, any unexpected costs such as broken down cars or electrical appliances could break the budget leaving important bills unpaid. Each provider will deal with missed payments in different ways; some will prompt payment prior to contacting the credit reference agency, others will simply go straight to the agency.
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A credit reference agency (such as Equifax, Experian and Call Credit) is a company which holds the details of each item of credit you've ever had. If you miss a payment on a credit commitment and it is reported to a credit reference agency this will show as black mark on your credit file; consistent missed payment or inability to be contactable could lead to defaults and in extreme cases CCJs.
In today's economic climate, mainstream lenders and high street banks require applicants to have immaculate credit history, anything less than this will result in them declining the application. Having things like missed payments and defaults will make you immediately ineligible for a high street loan.
Someone with lots of missed payments and defaults will be said to have a poor credit history and will therefore be deemed as a high credit risk. Those with a spotless credit history will be low credit risk.
High street lenders are able to offer the cheapest rates due to the credit risk of the customers that they are dealing with. Unfortunately those with less than perfect credit history will have to pay higher rates for their finance.
One particular type of personal loan that is bridging the gap between the low rate high street loans and the high rate payday loans is the guarantor loan.
Guarantor loan lenders are able to offer up to £7,500 at reasonable interest rates. These loans are designed for those who have been declined by their mainstream lender and are readily available on the basis that the applicant can find a friend or family member to support the application; and stand as guarantor.
Often finding a guarantor can be tough, but we've got some top tips on how to approach your friends or relatives.
The first rule is; always let them know the facts. As a guarantor your role in the application is to simply support the application and guarantee to pay the monthly repayment if the borrower ever fails to do so. If the applicant never misses a payment, the guarantor will never be contacted.
Being a guarantor in itself does not affect your credit history, the only way your credit history will be affected is; if the applicant fails to make a payment, and as guarantor you also fail to do so when prompted - this can result in a missed payment on both the applicant and the guarantor's credit file.
Providing you apply with a responsible lender they will carry out a number of checks on the guarantor (and applicant) in order to assess their suitability for the role. Unlike the applicant, the guarantor must have good credit; most lenders will also require the guarantor to be a homeowner who is receiving a regular income.
Always checks the lenders criteria prior to applying to ensure that the guarantor you have in mind will be eligible. Providing an illegible guarantor will simply slow down the process and indeed your chances of getting the finance you need.
Most guarantor loan lenders have now implemented an online process which means they are able to offer a same day decision and payout providing the application is successful.
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