Today, there are many different loans to choose from. The types of loan and the terms and conditions that come attached to them are as wide and varied as the purposes people borrow them. However, there is one type of loan that seems to be increasing constantly in popularity, and this is the bad credit loan. Nowadays, it is becoming easier and easier to get into financial difficulties as a result of credit. Almost every day there is junk mail in your letter box offering some form of credit card and in pretty much any high street store you go into these days, you will be presented with the option to sign up for a store card.
Add this to the offers from banks for increasingly large overdrafts, sometimes with no interested charged for extended periods, and debts such as student loans and it is very easy to see how people can let their credit build up a little bit too fast.
Therefore, banks and other lenders are increasingly turning towards offering some form of bad credit loan for those people who although they have been in trouble with debt before, still represent viable borrowers and can sill be offered credit. However, because of the increased risk in this kind of lending to the bank or other lender, the terms of the loan will be varied in some manner that seeks to protect the interest of the lender in some way.
There are two main methods that are by far the most popular way of reducing risks to the lender with bad credit loans.
* The first will be to secure the loan over your home if you are a home owner.
* The second will be to seek a personal guarantee from someone else, for example a parent, who will agree to repay the loan to the bank should you prove unable to do so.
While offering security over your home only involves you and the bank, and is therefore straightforward in that sense, seeking an assurance from a third party is more complicated as it not only involves you and the bank but also the guarantor.
What some people do not always fully realise is that if they are standing in as the guarantor of a loan, then even though they are not the one borrowing the money, and no money will be forwarded to them by the lender, they will be completely liable for the entire balance of the loan and the bank can seek repayment of the loan from them. While this will generally only be done if the primary borrower fails or is unable to repay the loan, it should be remembered that in many instances, the bank will have a choice of who to pursue for the debt so if they, for whatever reason, believe it would be easier to get payment from you, then there is a good chance that you will be the one they pursue.
Therefore, it can be seen that guaranteeing a loan for someone else, even a close family member, can be a very serious and onerous obligation. There have been many cases in the past where people have stepped in or agreed to guarantee a loan for their children, or even their spouse, without fully realising the legal implications of such an act, and have ended up losing their homes, or even being declared bankrupt as a result.
If you are being asked to guarantee a loan for someone else, you should consider the details of the loan carefully before agreeing to do so.
* Who is the person asking you to guarantee the loan and do you truly trust them?
* Have you known them for a long time, and what is the term of the loan, in other words, how long is the obligation going to extend into the future?
* If the primary borrower does fail, for whatever reason, to make all repayments on the loan in full and on time, are you in a position to step in and repay the loan?
* Will it put your home at risk?
If you are old and getting closer to retirement you should consider is this the right time in your life to be taking on extra financial commitments. You should always ask yourself the question, and answer truthfully, what position would you be in if you were forced to step in and repay the loan? Would you be placed in undue financial difficulty if you had to repay it?
In most cases, it will be a good idea to get independent legal advice or financial advice so that you have an accurate explanation of what fully will be your obligation under the guarantee. There are many situations in which you will want to help a family member and guaranteeing a loan will seem like a simple option, but take the time to become fully acquainted with all the bad credit loan risks before you agree to anything.