Consumer Rights: A guarantor can be a friend
indeed if you can’t get credit
Getting someone to be a backup for repayments may make all the difference in securing a loan
Saturday 21 September 2013
Are you having difficulty getting a loan? Perhaps you have a poor credit record because you’ve missed repayments on past loans. Maybe you are being offered loans with exorbitant interest rates. Even if you haven’t been in difficulty with money but haven’t borrowed in the past, getting a loan can be difficult too because you don’t have a credit history. A guarantor loan might be your answer but you’ll need someone else to guarantee to make the repayments if you can’t.
But while a guarantor loan could help you out of a hole if you having a problem borrowing money, it could seriously damage the wealth of your guarantor. If someone helps you – a parent or a friend – to get a loan by acting as your guarantor they should think through the consequences of their generosity carefully before signing on the dotted line. If you later can’t pay and they have to, it could leave them significantly out of pocket and terminally damage the relationship.
If you’re being refused the loan you need, or a loan you’re being offered comes with worryingly high interest rates, a guarantor loan may help you out. This is an unsecured loan so the lender can’t later repossess anything you own to cover any arrears.
You can borrow anything up to £7,500 over a year or up to five years. The catch is that you will only be offered one of these loans if someone else is willing to act as the guarantor. These loans can be a lifeline for people who have bad credit records. Many don’t have arrangement fees or charges. However, the interest rates are higher than they would be if you didn’t need a guarantor. They vary depending on the company you borrow from but are usually around 50 per cent. While that may sound high it’s a lot lower than payday loans or other high-interest loans. Some of those charge rates in the thousands of per cent.
You’ll probably be able to borrow more on a guarantor loan than you would if you went for any of the other types of credit aimed at people with poor credit histories. Another advantage is that by taking on one of these loans, as long as you keep making the repayments on time, you can rebuild your credit history and may become able to borrow from mainstream lenders in future.
There are also guarantor mortgages available. Again you need someone – usually a parent as these are big loans – to guarantee that your mortgage repayments will be made if you can’t afford to make the payments yourself. Your poor credit history won’t be repaired if your parents have to pick up the pieces, but you should be able to borrow a high proportion of the value for your home if you have a guarantor than you would do without one. As with any mortgage the loan is secured against the property so that the lender can apply to the court to repossess your home and sell it to cover the loan if no one makes the payments.
To get any loan you have to be at least 18 years old and have a bank account from which to make the payments. You need to show that when you take the loan out you can afford to make the repayments yourself and at the regular intervals – usually every month – set out in the agreement. The guarantor is there as a backup for the lender in case you can’t go on paying at some time in the future.
A guarantor could be a member of your family or a friend, but they will have to be someone who has a good credit record and they will usually have to be 21 or over and a home owner. They will also need to provide ID, proof of address and bank details.
You do have to think hard about the impact it could have on your guarantor if at some point you can’t keep up the repayment.
If you’re intending to act as a guarantor for someone, make sure you really do know what you’re letting yourself in for. You could find yourself in serious financial difficulty while trying to pay your own bills as well as someone else’s. Parents have got into real trouble trying to help their children onto the property ladder or borrow the money for a car.
Depending on someone else to pick up your financial pieces is likely to damage a friendship or leave your relationship with your parents strained to say the least.
Q. I’ve been living in a rented flat for the past three years and as far as I’m aware the landlord has never checked the gas supply or the gas fires. We haven’t had any problems but I’ve changed the batteries in the smoke alarm and bought my own carbon monoxide detector. What is the legal position? Who should do these checks? Do I have to pay for them myself? TM, London
A. Landlords are legally obliged to have the gas supply and any gas appliances in their properties checked every year. They should make sure all gas fittings are safe and operating properly. The checks should be carried out by an engineer qualified to do them and issue a gas-safety certificate. You should be given a copy of that. However, it seems more and more landlords aren’t meeting these legal requirements. Not only is your landlord leaving you at risk if there is a gas leak, or even worse, an explosion, he or she is also risking prosecution. Partly because there have been so many people letting out homes they couldn’t sell, or buying properties to let out as an investment, they often don’t know their legal responsibilities. You shouldn’t have to pay for what is the landlord’s responsibility. Point out to them that if anything awful happens he or she will be guilty of neglect, and can be sued and prosecuted.
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