Guarantor loans are relatively recent financial innovation and are a type of unsecured loan or personal loan. They differ from regular unsecured personal loans due to the fact that they do not require the applicant to be credit scored in order to be eligible to be successful. Credit scoring by the lender generally plays a crucial role in their decision making process due to the fact that there decision is based largely on the information which is provided regarding the applicant’s credit history and their current credit score – this is not the case with a guarantor loan. In basic terms, the creation of loans with a guarantor has changed the way that lenders assess the risk posed by the borrower – the need for a credit score has been replaced by the need for a guarantor to stand by the borrower. The lender says if the applicant can offer someone to guarantee the loan then the so-called guarantor clearly believes that the borrower will repay the loan. Essentially guarantor loans are all down to increased trust. The trust demonstrated in the borrower by the guarantor will be reciprocated by the lender. By utilising your own personal social network (friends, family etc) you will be able to radically increase the chances of successfully applying for a personal loan. Once the perceived risk to the lenders has been removed, they will be happy to lend.
Why Would You Consider a Guarantor Loan?
Due to a change in lending regulations and a wish to reduce bad credit, nearly all High street lenders (banks & building societies) have changed the way that they offer credit to a significant percentage of the UK population – when it comes to taking risks banks have gone from one extreme to the other. Nowadays even a small black mark on your credit rating can be enough to cause your credit application to be rejected. As with all credit applications, it is crucial for borrowers to ask themselves at the outset, ‘do you really need to borrow something?’ Is your finance situation in a position that you can afford to make the repayments? Is what you want to use borrowed funds for something that is of critical important? Is it for a “want” or a “need”? Our plea is that you shouldn’t borrow if doing so would have a negative impact on your probable future financial situation. If you answer these questions in the affirmative and can satisfy the criteria for a loan then there should be a lender who will lend and you will be able to proceed with your application.
Who Could Act as Your Guarantor?
Because guarantor loans online are essentially about trust, the obvious place to turn in regards to identifying the ideal guarantor is your own social network. It is crucial that you look for someone you know well and who trusts you. To be fair to everyone it needs to be someone whose friendship you would never want to jeopardise. We say this because by offering themselves as your guarantor they are potentially exposing themselves to the risk of you not repaying the loan. In this case the lender can require the guarantor to repay it. Consider:
It is not uncommon for employers and landlords acting as guarantors for people, however, who ever you want to act as a guarantor will need to meet certain financial criteria
What are the Criteria for Obtaining a Guarantor Loan?
These vary by lender but in general are likely to similar to these:
You must be aged 18 or over
You must be a UK resident
If you tick all of the boxes above, then a guarantor loan could be the ideal financial solution for you.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam