What is a Guarantor Loan? – Check Detailed Answer!
Guarantor Loan Requirements – Explained in Detail
Guarantor loan is a special kind of loan which demands that the borrower should have a guarantor with them. The guarantor should be a person or company that is willing to make repayments if the borrower is unable to do so. These loans are most suitable for people with a bad credit history. Now, there are many guarantor loan companies in the UK. This creates a big confusion for the borrower. To avoid wrong selection, the borrower must compare all of them and choose the one that fits his monetary requirements.
How does guarantor loans work?
To get a guarantor loan, the borrower must supply the details of the person who is ready to repay money if the borrower fails to do so. As repayments are guaranteed, the lender offers you loans with a low rate of interest. The guarantor will be called as the last resort. Normally, these condition does not arise but the loan provider keeps this condition as an assurance for repayment of his money.
Who can be a guarantor?
Generally, a guarantor is a close kin of the borrower, either someone from the family or friend circle who takes the guarantee of the borrower’s financial responsibility. The guarantor can be your relative but should not have any financial link with you. For example, your spouse or brother who shares your property is not eligible to become your guarantor.
Guarantor should be above 21 years of age and must have a good credit score. The lender will perform a credit check to ensure the authenticity of the guarantor. For this, they need the guarantor’s identification proofs, address proofs, bank statements and other legal details. It is good if they own a home in the UK. The lender may ask for security and so the guarantor must have equity to match the value of your loan.
Guarantor loans – for people with bad credit score
People with a bad credit score are turned down by mainstream lenders and are unable to get a loan. For such people, a guarantor loan works like magic. When these people have friends or family who take guarantee of their repayments, it increases the lender’s trust. And so, they offer loans at lower rates of interest than other forms of loans like payday loans. However, the APR starts from 50% which is quite a high rate.
With guarantor loan, you can rebuild your credit score!
If you are good at meeting all the requirements of your credit then it improves your credit score. This will help you become eligible for the unsecured and personal loans. Again, with an improved credit score, you become eligible for loans at low rates of interest.
Note with guarantor loans, you should be particular about the payments and other requirements of repayments else it will put your guarantor in a fix. So, use this alternative only when you are sure about the availability of money for repayments.
You should keep an eye on your credit score so that you can fix any problems in advance. If you already have a good credit score then you can think of other alternatives of borrowing loans.
Things to consider while taking out a guarantor loan:
Keep in mind that you have a healthy relationship with your guarantor and that he should be ready to face the risk involved in any crisis situation.
>In an extreme situation, they should be able to pay the loan or be ready to lose their property or belongings.
For people with poor credits, a word of caution is that from now onwards they should borrow responsibly so as to improve their credit score.
Normally, a lender gives loans in the range of £1000 to £7500. So, be sure about how much you want and whether this amount will suffice your needs.
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