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Guarantor Loans And Credit Scores

Guarantor loans and credit scores go hand in hand in many respects. We took a look how this is, and whether those looking for credit should consider such forms of loans.

How does a guarantor loan affect my credit rating?

Lenders will always tend to run credit checks before deciding whether to accept a customer, as part of their underwriting facility to ensure that the borrower is, in their eyes, low-risk. By seeing their credit history, the lender can see their record of repayments for other financial products, and also their specific rating, which gives a broad impression to the lender of whether to lend to them or not. If you have missed repayments in the past, then you will likely have a low credit score but if you have repaid your bills on time, you will have a high credit score. However, there are other factors too that determine a score, such as the amount of credit you have previously taken out, and your stability as shown by time spent at an address or current employment.
Credit scores can be broken down into five categories; very poor (0 – 560), poor (561 – 720), fair (721 – 880), good (881 – 960) and excellent (961 – 999).

For a guarantor loan, a credit check is run for both parties: the borrower and the lender. It is usually carried out as a soft search so it won’t leave a footprint on your credit file and other companies won’t be able to tell that you have applied for this type of loan as a borrower or guarantor.

Failing to repay may negatively impact your credit rating

If a repayment is not made, then the lender will usually contact the borrower to discuss the matter. If no solution is found, such as the guarantor taking over responsibility, then this missed payment will be sent to the credit agencies, appear on the report of the borrower and guarantor, and may thus negatively impact on both ratings.

Guarantor Loans And Credit Scores – Is a guarantor loan good for my credit rating?

Yes, regular repayments on any form of credit shows you as trustworthy and will help improve your credit rating. This is the beauty of a guarantor loan for those with a poor rating – it allows them to repair their rating with credit they wouldn’t otherwise be able to get. However, this is not reason enough to get a guarantor loan – they should only be taken out by those who need a loan, and not simply as an attempt to repair a credit rating.

Guarantor Loans And Credit Scores – Can a loan be repaid early?

The ability to pay off a long term loan will depend on the terms and conditions for the particular lender. Some lenders will allow this facility, with no additional charges, which will thus save you money as you will only pay interest for the days the loan was outstanding. Some others may not allow it however, or early payment may incur extra charges, so as always check your terms and conditions before proceeding.

If you have taken out a loan online, you will be able to log-in on the lender’s site to see the details of your loan. There will probably be an option in that section to pay off your loan early.

And if you can repay early, and there are no additional fees from the lender, then it is always a good idea to do so, because it makes sense to pay off debts as soon as possible, as long as it does not stretch you financially to do so. Just because a loan is for a certain amount of time, does not mean you must pay it off over that period, as circumstances change.

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