5 ways to secure the best deal on guarantor loans
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Securing an affordable guarantor loan takes some diligent preparation. A guarantor loan can be very helpful for those who need funds but have credit challenges approving a loan independently.
This reassurance enables financing to be made available despite credit-related issues. However, interest rates and additional terms may not be as affordable as hoped without prudent planning beforehand. Careful research and negotiation can make a big difference in the overall expense.
Therefore, examining your options and striving for the most favorable arrangements is crucial. By implementing the subsequent strategies, borrowers enhance their odds of finding the most reasonably-priced guarantor loan to suit their financial needs.
This article explores five tips for maximizing your chances of obtaining a guarantor loan with competitive costs.
1. Shop around for multiple lenders
Like any other type of borrowing, you’ll want to get quotes from several lenders to compare guarantor loan options. Interest rates and fees can vary significantly between lenders. Take the time to fill out short loan applications with multiple companies to see your alternatives for guarantor loans.
When comparing lenders, pay close attention to the annual percentage rate (APR), as this reflects the total cost of credit. Make sure to look at the loan term as well – longer terms mean lower monthly payments but higher overall costs due to interest.
Get all the details in writing to conduct an accurate like-for-like analysis of loan offers.
Don’t just stick with the first lender you find. By shopping around, you can secure the most affordable monthly payment and the lowest overall costs for the amount you need to borrow. Many guarantor loan providers publicly advertise their interest rates, so this initial research shouldn’t be time-consuming.
2. Build or improve your credit history
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A positive credit history can help you qualify for lower loan rates, even with a guarantor. Take the time before applying to make sure you pay all your bills on time each month and keep your credit card balances low. Paying off collections accounts or defaulted loans can also boost your score.
If possible, become an authorized user on somebody else’s credit card – the on-time payments will also be reported to your file. You may also consider a credit builder loan, where you make monthly payments into a sort of escrow account and receive the money back once you’ve shown responsible repayment habits over 6-12 months.
Any improvement to your credit file makes you a more attractive borrower to lenders.
It’s also worthwhile checking your credit reports from the three major bureaus for inaccuracies before applying. You can dispute any errors so the most accurate picture of your financial responsibility is presented during underwriting.
An imperfect credit history doesn’t mean a guarantor loan is impossible, but even minor improvements can lower your cost of borrowing.
3. Negotiate the terms
Just as with any significant purchase, it’s always worth negotiating guarantor loan terms if you can.
You have more leverage if you have pre-approval from multiple lenders. During negotiations, focus on things you have direct control over, like the interest rate, any origination or documentation fees, and the potential for prepayment without penalty if your financial situation improves.
Remember that any small percentage point reduction in the interest rate translates to meaningful savings over the life of the loan. Even trimming a few dollars off other fees adds up. Flexible early repayment terms also give you more financial freedom. Express that you have competitor offers and see if the lender is willing to match or beat them.
Another option is asking for a lower cost if you agree to automatic repayment from your bank account. Negotiation takes some confidence, but it’s always worth trying to reduce your loan costs in whatever ways possible. The worst they’ll say is no. And since guarantor loans are higher-risk products, lenders are still motivated to earn your business.
4. Consider loan add-ons carefully
Some guarantor loan providers offer add-ons like payment protection or device insurance for an extra monthly fee. These add value in some cases but always evaluate if they are worth the ongoing cost for your needs.
Payment protection insurance may cover your loan payments if you lose your job or have health issues, but it only kicks in after an exclusion period and has other limitations. Consider whether you have sufficient emergency funds or income protection to cover the same scenarios.
Device insurance covers electronics purchased with loan proceeds if damaged or stolen, but you likely already have coverage. Read the fine print of any add-ons to understand coverage details, eligibility, exclusions, and how long monthly fees persist before agreeing.
Only sign up if you truly need – and will financially benefit from – the additional protection.
5. Get help from a non-profit credit counselor
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If you struggle significantly with personal debts or cannot qualify for conventional loans, speaking to a non-profit credit counseling agency could help. Counselors provide free budgeting assistance and may be able to negotiate lower interest rates or payments with lenders on your behalf.
They also offer approved debt management plans where monthly payments go directly to creditors from the counseling agency. This shows responsible repayment to lenders and responsible use of credit reports to improve your credit scores over time.
While not a cure-all, credit counseling is an alternative way to access affordable credit options.
Final thought
With some effort upfront, you can get the best terms on a guarantor loan to meet your borrowing needs.
By comparing multiple lender offers, building your credit profile, negotiating key loan factors, scrutinizing add-on costs, and considering counseling resources – you maximize the chances of securing an affordable loan arrangement even with imperfect credit.
Ensure any guarantor loan fits your budget and full repayment plan as interest costs increase.
