Moolr.co.uk | Short term loans

Who can be a guarantor on a loan?

A poor or limited credit history could affect your ability to obtain a personal loan. However, if you can find a friend or family member to act as your guarantor, you may still be able to borrow money. These have a specific name – so we thought it good to examine who can be a guarantor on a loan?

What is a guarantor loan?

A guarantor loan is a personal loan that a friend, relative or work colleague guarantees for the borrower. The guarantor will usually need to have a very good credit rating and will promise to honour any debt if you, the borrower, default on your payments. In this situation, the guarantor will have to take over the repayments until they pay the loan off.

Credit Scores

If your credit score is all that is standing between you and a perfectly affordable loan, applying with a guarantor can help you get your application across the line. It is crucial to understand that being one does not mean vouching for the applicant or simply providing a reference. The other party is actually volunteering to pay off the loan if the applicant does not.

Who can be a guarantor on a loan?

Asking someone to be your insurance is a big decision for both parties. As an applicant, you are asking them to risk their financial situation to help you secure credit.

Your confidante will need to have good credit and be able to afford the repayments. Perhaps they own their own home, but they could also be renting, a tenant or living with family. Their homeowner status can affect which type of guarantor loan you can apply for, depending on the lender. These loans involving a guarantee who owns their own home or has a mortgage tend to come with better interest rates than non homeowner guarantor loans.

Importance Of Relationships

A borrower and a guarantor need to have a close and trusting relationship. They need to talk openly about their financial situations. The guarantor needs to know the borrower can afford to make the monthly loan payments. This is so they won’t have to use their own money to pay off the borrower’s debt. However, the party guaranteeing the credit must have the finances available should the borrower run into problems with their repayments.

Eggs In Baskets

When looking for someone to guarantee your loan, it is a good idea to have at least two people in mind. It is more often the other party’s circumstances that lead to an application being declined. Applying for a guarantor loan is a big commitment for both parties. It could impact their credit report and financial situations.

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