You might not have been aware of Guarantor Loans since they’re less popular than other loan options. This essential guide will tell you about them, what they’re for, and what you should be aware of before making one for yourself.
The term “guarantor loans” is what it means.
A guarantor’s loan is an unsecure loan in which a person, referred to as the Guarantor, is accountable for paying off the debt if you do not pay the loan. These loans target those with a bad credit score Who may have previously denied other loan products.
How much money can you get?
Guarantor loan amounts typically vary from PS1,000 to PS10,000. Based on the lender and product, they can be taken out for between one and 5 years.
Who can get a loan?
They are intended to attract those with bad credit scores and who have been denied credit elsewhere. However, you might be rejected based on your credit score’s severity.
Additionally, you must be 18 or older and have a UK banking account. You will need to prove to the lender that you can pay the loan (through financial documents such as a payslip) and provide the details of the named guarantee.
Who is a guarantor?
A guarantor may be anyone, including an acquaintance, coworker or family member. But they can’t be someone financially tied to you, as spouse or business partners.
The Guarantor should be older than 21, have a solid credit score, and have a history of being a UK homeowner (in certain circumstances, the Guarantor will not need to be a homeowner; however, they should have a strong credit background). The lender will also have to conduct credit checks on the Guarantor, so they should be ready for this.
What’s the deal with Interest?
The interest rates on guarantor loans could be pretty high – up to 60 percent APR depending on your credit score and financial condition. Like other loans, you’ll have to pay Interest and your monthly payments.
If you take out the sum of PS5,000 with an APR of 50% and a repayment period of three years, then the amount you repay will be PS8,790.48. __
What Happens If I fail to pay?
If you cannot pay back the loan (default), the guarantee will be required to pay the loan in full and any additional costs within a specific date.
If both you and your guarantee fail to pay this loan amount, it could also impact your Guarantor’s credit rating, and in some cases, it will prevent them from obtaining credit in the future.
Because certain loans are secured against the Guarantor’s property, if you are unable to pay the loan and your Guarantor’s not in a position to pay you back, they could be at risk of losing their home.
To the Borrowers…
We advise you to consider your options carefully before applying for a guarantor loan. Perhaps you are in desperate need, and you’ve been denied credit elsewhere. Consider:
- Have you required the loan? Or are you simply looking to borrow it?
- Are you able to make the payments?
- Do you have the ability to manage your obligation to someone else if you are unable to make payments?
- What impact will the debt have on your Guarantor’s life if you fail to pay and they’re in debt? If there’s any doubt about this, don’t make it.
Be aware that your Guarantor could be a family member, friend, or even someone you work with. If you default on your payments, transferring the obligation to them may cause a rift in your relationship, causing massive stress. Learn more about how borrowing money from family members and friends can impact relationships.
If you decide to go ahead, ensure that you’re fully informed regarding the loan’s terms and the amount that the Guarantor must be able to pay in the event of a default.
If you know someone who has approached you about becoming a guarantor, consider your circumstances before agreeing. Keep in mind that if they fall behind in their payments, the debt becomes your obligation.
As a guarantor, you do not have direct control over the loan repayments made by the borrower. You just have to believe that they will be able to pay the loan.
If you choose to proceed, be sure that:
- You are satisfied that the borrower will be able to pay the loan punctually and in full. They should be able to talk about your financial position with them. Are they employed, for instance? Did they have a history of defaulting on payments previously? Be wary if the borrower has a lousy track record of being in default on loans.
- It is essential to think about the security you’re willing to apply for the loan. Who can take anything you put up for the loan (for instance, your home) away from you if the borrower fails and you cannot make the repayments.
- You receive the complete loan document, complete with the conditions and terms. Could you go through them in detail?
- Everything is written. You should have an agreement drawn up by you with your borrower, including what the repayments are and when the borrower is expected to make the payments.
Where can I locate Guarantor Loans?
For those who cannot afford credit, getting a little help from a family or friend or family member through the use of the guarantor loan could be an excellent alternative.
If you adhere to the loan terms and do not miss an installment and pay off the loan, it will help you improve your credit score for the future. But, if you do default on a loan, it could end your relationship with the Guarantor for life.
There’s a lot to take into consideration. If you decide to go for it, compare loans in detail before contacting a prospective Guarantor.
There are tools for comparison from trusted websites such as the Readies. You can also use Experian’s CreditMatcher, which can assist you in finding the best loan, not just a guarantor loan – to improve your credit score.
Don’t forget that the decision to take out a high-interest loan can be risky and cause additional debt. It is essential to be sure that you’ll be in a position to pay the debt in the total amount and punctually. If you’re in a financial bind, assistance is available.
Reach out to your local Citizens Advice Bureau or Step Change debt-relief charity before taking on more debt; they could be able to suggest alternative solutions for your current situation.