Guarantor Loans Explained.
Guarantor loans are unsecured loans that need a second person to co-sign the credit agreement. A guarantor loan enables people to borrow more money or the equivalent amount at a lower interest rate than they would have been able to secure through traditional methods of borrowing.
What is a Guarantor?
A guarantor is someone who agrees to pay back the debt if the borrower default’s on the agreed repayments. Usually, the guarantor is a relative or a friend who’s credit score is better than the person applying for the loan. Therefore the provider is at a lower risk.
Guarantors usually face checks identical to a normal credit check – they will be required to supply bank details, bank statements, and proof of Identification (i.e.Pass Port or drivers licence).
Is it right for me?
Typically Guarantor loans are directed towards people who find it hard to arrange a loan via traditional methods – due to a poor credit score. Guarantor loans allow people to borrow larger amounts than they would usually be able to with a poor credit history.
Who makes a good Guarantor?
Disregarding your spouse or someone who is financially joined to you. Virtually anyone can be your guarantor, A guarantor can be a member of your family or even a trusted friend or colleague.
Often Guarantors are parents who wish to help their children. Maybe they need help raising a deposit for their first home, or undertake a training course to help them progress in their career. There are numerous possibilities why an offspring may need help and the fact they cant take out a loan themselves doesn’t mean they are unable to repay the loan or financially responsible.
What if I miss my repayments?
If you are unable to pay or fall behind you would be asked to catch up on the repayments. If you fail to comply, your account would default therefore the guarantor is eligible and would be asked to make the payments.
The debt would be handled using the regular debt collection process. This could mean the debt would be transferred to a debt collection agency.
This places the guarantor under a notable risk, as they have agreed to be responsible for the debt if you fail to make the repayments. The loan will impact on both of your credit files and will affect all parties the same way.
Should you default on repayments, if your guarantor is a close friend or member of your family, the relationship could be put under considerable stress, causing financial difficulty due to guarantor having to pay your out standing debt.
I’m thinking of becoming a guarantor. What does this mean?
As a guarantor, you will be accountable for paying any outstanding debt if the borrower fails to keep up with repayments.
Acting as a guarantor can be risky, therefore when considering this path be sure you aware exactly of the implications.
What should I consider before agreeing to be a guarantor?
According to Citizen’s Advice Bureau, before you agree to be a guarantor, you need to ask yourself:
• Why do they need a guarantor (do they have a poor credit history? Is it likely they will have problems making the payments?)
• Is the borrower responsible enough to have a loan?
• Is the loan a wise one (is it for something they really need, or could they just save up for it?)
• Would you be willing and able to back the loan (plus debt recovery costs) if the borrower can’t or won’t?
• What would you list as security, and are you willing to risk having it repossessed if the money can’t be paid back?
• If in doubt, seek legal advice first.
Can a guarantor protect themselves?
Becoming a guarantor for somebody, is a lot riskier than just giving the borrower a character reference.
It’s very important you understand that, if payments default, the lender will hold the guarantor accountable and approach the guarantor before the borrower if they believe that their is a greater chance the guarantor will pay.
Monevo and Wefindanyloan.com recommend to seek out as much information and advice before taking out any type of Loan or becoming a Guarantor. Here’s a couple of sites to help you along the way: