Many people find it difficult to obtain a loan, especially if they have bad credit or no type of credit history at all. Therefore, guarantor loans may offer a solution. In order to find out if this type of financing can work with you, you need to define the loan product.
An Unsecured Type of Funding
A guarantor loan is an unsecured loan that requires a guarantor. Loans usually span between one and five years and applicants normally borrow from £1,000 to £10,000. Whilst a guarantor loan may sound as if it is a new concept, it is not a new financing alternative. This type of funding was used by banks before credit scoring replaced the honour-based system. Therefore, it is still common for mortgage companies and landlords to ask for guarantors today.
Normally, guarantor loans are targeted to consumers who are struggling to obtain loans through traditional sources. Because a guarantor is included in the financing process, this type of financing permits you to borrow a higher amount of money than you would without the guarantor.
Who Can Act as a Guarantor?
When you take out a quick guarantor loan, almost anyone can serve as the guarantor as long as he or she is not connected financially to you (such as a spouse). Therefore, a guarantor can be a work colleague, friend, or family member. For a guarantor to be accepted, he or she needs to be over the age of 21, possess a good credit history, and be a homeowner in the UK.
When checks are made on a guarantor, they are identical to regular credit checks. Guarantors need to supply bank details, bank statements, and a proof of an ID. This information is needed in case you default on your loan and the guarantor needs to make the payment.
Making the Decision to Guarantee a Loan
So, guaranteeing a loan or other kind of credit contract can be risky. Therefore, guarantors should always be fully aware of the implications. If the borrower cannot pay, then the guarantor is responsible for making the payment.
Before anyone becomes a guarantor, he or she should ask the following questions:
- Why does the borrower need a guarantor?
- Is it likely the borrower may stop making payments?
- Is the borrower responsible?
- Is the loan for something the borrower really needs or is it for something that could be purchased with savings?
- Can I back the loan if the borrower cannot or will not pay?
- What item am I willing to have repossessed if I cannot pay the money?
Needless to say, taking out a guarantor loan or guaranteeing financing cannot be taken lightly. Both the borrower and guarantor can receive negative marks on their credit reports if they either or both of the parties default.
When a loan is guaranteed, then the lender must provide you with a copy of the credit agreement so you can follow the payment schedule. He or she should also supply you with a copy of the guarantee contract. This agreement must be in writing and signed by the borrower and guarantor. Otherwise, the contract cannot be enforced.