Guarantor Loans: The Key Facts

All variations of poor credit loan offer a financial lifeline for borrowers who would struggle to successfully apply for a standard personal loan with a High Street bank or building society. It is very important to do your homework though because when taking out many forms of bad credit loan, you will be exposed to very high APRs. Guarantor loans, however, offer the opportunity for anyone without a perfect credit history to obtain a loan without having to pay an astronomical amount of interest. Because the presence of a guarantor (hence the name!) enables you to reassure the lender that someone you know can cover any repayments you may miss, the risk to the lender is reduced and in turn they will reduce the amount of interest they charge. Most guarantor loans companies charge approximately 50% APR, which is obviously significantly less than the 4000% charged by some payday loan companies for an unsecured loan.

But what other benefits do guarantor loans offer? At a time when many people struggle to meet rising food and fuel costs, along with facing insecurity regarding their working arrangements, taking out a loan is often a worry in itself. It is therefore important to understand all there is to know about guarantor loans before making any type of commitment.

How Do Guarantor Loans Work?

Guarantor loans work by placing someone, the ‘guarantor’ alongside the borrower who will be contracted to cover any missed repayments and take on ultimate responsibility for the loan, should the borrower fall into default. However, the loan is in the borrower’s name, and the guarantor does not need to do anything else.

It is crucially important for the guarantor to fully understand their commitment and responsibility. The guarantor will be subject to credit checks, in order for the lender to approve the loan, to ensure that should they have to step in, they possess the means to cover the repayments.

Benefits of Guarantor Loans

Guarantor loans offer a borrower with a poor credit history the chance to access credit at significantly reduced interest rates when compared to other bad credit loans. They also allow the borrower to repair their credit record, because all repayments are made under the name of the person actually taking out the loan. They are also the most flexible of loans, and borrowers generally have the option to repay the loan before the end of the loan term without being financially penalised.

Are There Any Risks?

The loan guarantor is nearly always someone who knows and trusts the borrower to make the scheduled repayments. If you find yourself in a position where you cannot do this, the guarantor will be responsible. This can obviously cause problems and therefore it’s always a good idea to make an arrangement to repay your guarantor if they have to step in and help.

Who can be a Guarantor?

Because the guarantor may have to step in and assume responsibility for the loan, it’s vital that they are in a financially secure position themselves. For this reason, lenders have a number of stipulations which must be satisfied if someone is to be eligible to fulfil the role. These vary from lender to lender but generally include a request that the guarantor must be a home owner aged over 23, with a good credit record and be receiving a regular income.

How Much Can You Borrow?

An unsecured guarantor loan allows you to borrow up to £10,000, normally over 60 months. It is always prudent to ensure that there are no set up or hidden fees attached before signing up, to avoid extra costs.

 

Bio – Amanda Gillam

I work as a blog writer for a finance company called Solution Loans which specialises in providing loans with no credit check. I hold a degree in financial management and enjoy writing about a variety of topics including finance, transport, travel, sport and business.

 

Tags: Business, Credit, Credit history, Debtor, Finance, Guarantor Loans, Loan, Surety, Unsecured debt

Category: Loans