Guarantor loans offer a possible solution for anyone who is looking to obtain a loan and has either a poor credit rating or no credit rating at all. There are a range of loans currently available for those with a bad credit rating but the guarantor loan is different due to the fact that that it provides customers who have a good character and willingness to pay, the opportunity to raise a loan at an APR (Annual Percentage Rate) which is not prohibitive, should the need arise.
It is not without a little irony that many people who are in desperate need of credit are the ones least likely to get it but with the inception of the guarantor loan, the balance has been redressed a little. If this sounds like something that you could help you, what do you need to know about this type of credit?
What is a Guarantor Loan?
Firstly, what exactly is a guarantor loan? A guarantor loan is an unsecured loan which has been created to offer those with poor or no credit history and no security to offer against the balance of the loan, an option to secure credit. By assigning someone to act in the role of guarantor against the loan, lenders receive the security of knowing that if the borrower fails to keep up with repayments, there is someone on hand who will be legally obliged to continue making the payments. Because of the assurance that the debt will be paid off by the guarantor in the event of a default, guarantor loans are available at lower interest rates in return for that level of security.
Who Can Act as a Guarantor?
This naturally leads to the question, who can you ask to be a guarantor? Basically, this can be anyone with whom you share a strong mutual degree of trust. This is most likely to be either a family member (not spouse or partner) or a close friend, and will be someone who is willing and able to take over repayments if necessary. Due to the new responsible lending policy which has been implemented by many loan companies, the guarantor will be expected to be a homeowner, have a regular income and a positive credit history. Although the guarantor will be expected to be a homeowner, this requirement is not put in place to offer security against the loan, it is simply to allow the easy tracking of the person in question should the borrower default on any payments. As long as the guarantor is fully aware of their legal obligations to repay the loan should you default, there are no other requirements which must be met.
Associated Benefits of a Guarantor Loan
Guarantor loans are not suited to anyone with a record of falling behind on a payment schedule. The guarantor is there to act as a safety net and therefore will only be helpful to an applicant who can find someone who is deemed a secure and responsible individual to stand guarantor to the loan. Although it is the guarantor for the loan who will ultimately be responsible for the payments should the applicant default, this is a scenario that should not arise.
Because this type of loan is available to people who have a poor credit rating, it also offers the distinct possibility of helping to repair that rating by allowing the borrower to demonstrate that they can make regular repayments.
Bio – Amanda Gillam
I am a freelance writer who writes regarding many different topics including finance, transport, travel, sport and business. I hold a degree in financial management and have published a number of articles for Solution Loans.