Checking the Affordability of Your Guarantor Loan
When you take out a guarantor loan the lender should carry out a series of affordability checks that ensure you should have been offered a loan in the first place.
That’s why it’s important to choose a responsible lender.
There are a series of checks and laws in place to make sure lenders lend responsibly which include making sure you can afford the loan in the first place and making sure you can make the repayments over the course of the loan’s duration.
Of course, the nature of a guarantor loan means that you’ll have a trusted friend or family member supporting your application. And regardless of the wealth of the guarantor, you should be able to afford the loan yourself.
A guarantor loan is a serious financial commitment and what you don’t want is a problem further down the line because you acted in a hurry.
What A Responsible Lender Should Check
Choosing a guarantor loan lender who is responsible is important.
Below are the typical things a lender will check:
- Your credit score and credit file – this is one of the main things that is checked for both borrower and guarantor. It looks at debt to loan ratio, that is how much debt you have compared to how much you are entitled to
- The borrower must be at least 18 with a monthly take home of at least £500
- The borrower must be a UK resident, have a mobile phone and debit account
- There must be no history of bankruptcy or county court judgements (CCJs)
- Your expenditure
- If you are self-employed or have wages that fluctuate
- In general, that your credit score isn’t getting worse because you’ve defaulted on a recent loan
What Happens if You Can No Longer Afford the Loan?
Now more than ever it’s been seen that times change and what were your circumstances when you took out the loan may not reflect the situation now.
It can happen to anyone.
The important thing is to get in touch with the lender as soon as possible. Struggling with debt can be debilitating. You can feel that you want to bury your head in the sand. It’s crucial that you get in touch with the lender as soon as possible. The situation will only get worse if you leave it.
You can also get in touch with the Money Advice Service for free and impartial advice too.
Your lender will likely ask to see payslips and bank account details to get an overall picture of your financial situation.
It’s possible for a lender to offer a payment break but you should get in touch with them to discuss this.
Don’t cancel your direct debit as it may count against you. If a payment deferral is agreed the lender will suspend the direct debit for you.
A payment deferral is not a payment holiday and you will likely be charged interest on the period of time you have deferred. It will also extend the length of the loan.
A lender may also ask you to pay the amount in a lump sum or increase your monthly amounts to make up the payments from the deferral period.
It is not a contractual obligation, but if you are in good standing with your loan or your circumstances have been the result of Coronavirus the lender will discuss the options should you ruin into financial difficulties, including a possible payment deferral.
Any payment deferral that has been agreed won’t affect your credit score.
Communication is the key here, and you should allow yourself plenty of time to discuss the options. Ideally you should contact the lender as soon as you know you are having problems or envisage having them.
If you decide a guarantor loan is the right option for you ensure you choose a responsible lender. Do your research, check the internet for reviews and news updates. And as easy as it is to say, try not to make a decision in a hurry or because you feel desperate.
It’s a big financial commitment. So, take as much time as you can. And if you do encounter any problems seek proper advice as quickly as possible.