Before explaining the benefits of guarantor loans, we should first explain what they actually are. They are effectively personal loans with a guarantor – i.e. unsecured loans that have been created specifically for people with either adverse credit history or no credit history at all. If you are in need of a swift influx of funds and have a poor credit history then you may well find that a guarantor loan may offer the ideal solution for you.
What Do I Need to Know?
To apply successfully for a guarantor loan you will have to make certain that the person who you would like to be your guarantor satisfies a number of criteria set out by the lender. First and most importantly, the guarantor must own their own property. This is not because the loan will be secured but because it is vital that the lender must be able to contact the guarantor should the borrower fail to make any repayments. The guarantor must also be in receipt of a regular income and have an excellent credit rating of their own. People who have proven to be popular choices include anyone with whom you share a large degree of mutual trust. Close friends, parents, family members, colleagues, landlords etc are all commonly asked to be guarantors. The only person who will be ineligible to act in the role of guarantor is a partner or spouse because they will already be financially connected to you.
Why Do I Need a Guarantor?
Unless you have a credit rating which indicates that you are able to maintain regular repayments on your debt (an aspect which contributes greatly towards obtaining a good credit rating), you will be judged to be a high risk to the lender. Taking into account the new responsible lending criteria followed by nearly all lenders, this means that you will be highly unlikely to be able to successfully apply for a loan. However, by having a guarantor attached to your loan agreement, this risk is significantly reduced because there will be someone in place with a legal responsibility to make repayments should the borrower fail to do so. Because of this, the guarantor will be ultimately personally responsible you the loan and therefore it is crucial that they fully understand their obligations. Due to the close relationships often shared between the borrower and the guarantor, non-compliance by the borrower can severely harm or alter their relationship with this person should they fail to make payments.
Benefits of Guarantor Loans
If used as intended, guarantor loans have the potential to offer a solution which can help to overcome a financially difficult time. They are generally available at very short notice (usually within 24 hours of submitting the application) and can even help to improve the credit rating of the borrower if the repayments are made on time. Because guarantor loans are a variation of a personal loan, lenders are generally very flexible in regards to what they can be used for. Many people use them for debt consolidation purposes, whilst others use them to buy a new car or pay for a holiday. The choice is ultimately yours.
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