The process of applying for and receiving a guarantor loan is just like many other loans, however, they require a guarantor, someone to guarantee the loan. Guarantor loans are for people with weak, poor, or no credit. But, how do guarantor loans work? Let’s take a look.
The loan process is similar as with all loans, with the exception of having a guarantor. An applicant may want to review their credit and credit score first, prior to applying for a loan. Also check their eligibility before applying for a loan. They may qualify for a loan on their own without a guarantor.
Checking one’s eligibility for a loan does not affect your credit score, and gives you a good idea if you even require a guarantor loan. Should you not qualify for a standard loan, and still require a loan, you can apply for a guarantor loan. If you are not eligible or qualify for a standard loan, you can apply for a guarantor loan, which means you may wish to speak to close friends and family first as they could be the one guaranteeing the loan.
A close friend or family member, someone who feels that you will repay the loan. A guarantor needs to be someone who knows you, but is not financially linked to you. If for any reason you do not repay the loan, it will then become the guarantor’s responsibility.
Not in all instances, if a guarantor has a strong credit rating and credit score, they do not need to own property.
Guarantor loans can be used for any purpose, such as to do repairs to a car, purchase a car, consolidate other accounts, the loan can be for anything.
Interest rates for guarantor loans are higher than a standard bank loan due to the risk to the lender. Interest rates can be around 40% to 50% annual percentage rate. Rates for guarantor loans while higher than a standard bank loan, are much lower than the 1500% to 2000% or higher for a payday loan.
Guarantor loans can be various amounts, £1000, up to £10,000 in some instances. Terms can be for as long as 60 months. This makes repayments more affordable.
Yes, guarantor loans are underwritten in the same process as other forms of loans, and affordability checks are in place. The nature of the loan is that the borrower may have poor or no credit, so a guarantor strengthens the loan.
Yes, many lenders do not have pre-payment clauses and you can pay the loan off early, or pay more towards the loan each month.
Approvals vary from lender to lender, many will have the loan approved in 24 hours depending on what documentation is required and how quickly it is provided. Once the loan is approved, the money can be transferred to the guarantor’s account within hours.
If for any reason the borrower cannot repay the loan, the lender will contact the person who guaranteed the loan for payment, they will then be responsible to pay the loan.