A guarantor loan is an unsecured loan ranging from £500 to £7,500 with a repayment period anything up to five years. The loan differs from other as it relies on someone close to the borrower. This could be a partner, friend or relative, “guaranteeing” the loan. If you cannot pay your loan on time at any point during its duration, the guarantor becomes responsible. they then must cover the payments. The interest rates for such a loan tend to be much lower than for a payday loan. However, the terms are usually longer so this is to be expected, and there are usually no upfront fees or administration costs.
The criteria for applying for a guarantor loan are the same as other types of loans. You must be over 18 years of age, living and working in the UK, with a valid debit account. The loans are designed for those that have struggled to obtain credit in the past. Hence they require the extra security of a guarantor. The acceptance rates are generally very high, as the lender has the added security of the guarantor. They thus see the loan as low-risk. So if you can find someone to guarantee a loan, it is an excellent way of obtaining credit and improving your credit score by making regular repayments.
The application can be done entirely online, and usually takes a matter of minutes. You will be required to enter the contact details of both the borrower and guarantor. you need to answer a series of questions related to credit and affordability checks. If successful, you will be contacted by email and supplied with a link to verify your loan. To complete the process, it may be necessary for the lender to phone you or ask for some proof of identification. This is not in all cases however.
A lender will look at the credit rating of the guarantor, and if they have a good rating. If they do you stand an excellent chance of being accepted even if your own credit history is poor.
Funds are often deposited direct within a day, or often the same day. It is usually sent as one lump sum, to the guarantor’s account. This helps prevent fraud as it ensures the guarantor is fully aware and involved in the agreement. The money can then be passed onto the main borrower. It is essential that both parties have a valid bank account for this loan.
Repayments are generally made in monthly instalments. When you first apply for a loan, the repayments and total to be pay will be made clear to you. This is so that you can be confident about going ahead with the agreement. The repayments will be taken direct from the borrower’s account. If a repayment is made, the lender will tend to contact the borrower first, and may then take the repayment from the guarantor instead if the borrower is not in a position to make the payment. Some lenders will accept credit card payments.
Some lenders will also allow early repayment of the loan, but that depends on the individual agreement you have with a lender. Always check the terms and condition for full details.
The concept of guarantor loans is not new. Mortgage companies and landlords have long had utilised the concept of having someone guarantee contracts. The idea was that if the guarantor trusts the borrower, then the lender has good reason too also,. Naturally the risk is reduced for the lender at the same time.
Guarantor loans have grown due to the rise of payday loans, which often have annual percentage rates in the thousands. Thus, guarantor loans have developed as a cheaper to the short-term cash advance loans. Payday loans, and the quick repayment time that comes with the, can really impact on people’s finances. Guarantor loans, often for longer repayment periods, offer greater flexibility and thus make it easier to manage finances.
In addition, there is also the significant advantage of a much better acceptance rate for people with a mixed credit history. Those often turned down by bank and building societies for loans are far more able to get unsecured credit by having a person they know be their guarantor, and by making regular repayments can repair their credit rating.