Guarantor Loans – What You Need to Know

A guarantor loan is a type of unsecured loan where somebody else agrees to be responsible for the repayments if you default. In this post, we explain how they work and what you need to know before you apply.

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What is a guarantor loan?

A guarantor loan is a type of unsecured loan which involves a third party – known as a guarantor – agreeing to cover the repayments if the borrower is unable to.

The guarantor is usually a friend or family member of the borrower, but can also be an organization such as a bank, building society or credit union.

The guarantor is essentially taking on responsibility for the loan, so it’s important that they are able to afford the repayments themselves if they are needed.

Guarantor loans can be used for a variety of purposes, including debt consolidation, home improvements and business start-ups.

The interest rates on guarantor loans are often lower than those of other types of unsecured loans, as the lender has the security of knowing that there is someone else who will make the repayments if necessary.

Guarantor loans can be an option for people with bad credit ratings or no credit history at all, as the guarantor’s good credit rating will be taken into account when assessing the loan application.

How do guarantor loans work?

Guarantor loans are a type of unsecured loan where the borrower is supported by a guarantor, who agrees to make repayments if the borrower cannot.

The guarantor is usually a friend or family member of the borrower, although some companies will accept other types of guarantors such as a colleague or business partner.

The guarantor does not need to be a homeowner, but must have a good credit rating and be able to afford the repayments if they are called upon to do so.

Guarantor loans are typically used by people with bad credit ratings who would not be eligible for a standard loan, and they can sometimes be used to consolidate multiple debts into one monthly repayment.

The interest rates on guarantor loans are usually higher than on standard loans, because the lender perceives them to be higher risk.

However, if the borrower keeps up with their repayments then both their credit rating and that of their guarantor should improve over time.

Who can be a guarantor?

In order to be a guarantor, you must:
-Be aged 21 or over
-Be a U.K. resident with a good credit history
-Own your own home (with a mortgage) or have significant savings

As you can see, the requirements to be a guarantor are not onerous. If you meet the above criteria, then you should consider becoming a guarantor for someone you know.

What are the benefits of guarantor loans?

Guarantor loans offer several benefits to both the borrower and the guarantor. For the borrower, guarantor loans provide an opportunity to borrow money at a lower interest rate than would be possible with other types of loans. Additionally, guarantor loans can help borrowers who have a poor credit history or who are self-employed. For the guarantor, guarantor loans offer the opportunity to help a friend or family member borrow money without having to put up any collateral. Additionally, guarantor loans can help build credit history for the guarantor.

Are there any risks associated with guarantor loans?

Guarantor loans are a type of unsecured loan. This means that the money you borrow isn’t secured against any asset, such as your home. Because of this, if you can’t keep up with your monthly repayments, you could end up facing legal action and having your debt sold on to a debt collector.

If you default on a guarantor loan, your guarantor will be legally responsible for repaying the debt. This means that if they can’t or don’t want to repay it, the lender could take legal action against them.

Your guarantor could also end up with a poor credit rating if you don’t keep up with your monthly repayments. This could make it difficult for them to get credit in the future.

If you’re thinking of taking out a guarantor loan, it’s important to make sure that both you and your guarantor understand the associated risks and are comfortable with them.

How do I apply for a guarantor loan?

To apply for a guarantor loan, you will need to have a guarantor who is willing to step in and make loan repayments if you default. This person must be a homeowner and aged 18 years or over.

Once you have found a guarantor, you will need to complete an application form which can be done online or over the phone. During the application process, you will need to provide information about your income, employment status, outgoings, and other financial commitments.

It is important to remember that your guarantor will be responsible for making repayments if you cannot, so it is important to choose someone who you trust and who can afford to do this.

What are the eligibility criteria for guarantor loans?

In order to be eligible for a guarantor loan, you must:

-Be over the age of 18
-Be a homeowner
-Have a good credit history
-Have a regular income
-Not have any outstanding debts

How much can I borrow with a guarantor loan?

The amount you can borrow with a guarantor loan depends on a few factors, including your employment status, credit history, and the value of your chosen property.

If you are employed, you may be able to borrow up to 80% of the value of your home. If you are self-employed, the maximum loan amount is usually 60%. Credit history is also a factor in determining loan amount. If you have a good credit history, you may be able to borrow up to 90% of the value of your home.

The value of your chosen property also affects how much you can borrow. The higher the value of the property, the more equity you have, and the more likely you are to be approved for a larger loan amount.

What are the repayment terms for guarantor loans?

The repayment terms for guarantor loans are typically between one and five years, although some lenders will offer terms of up to 10 years. The repayment period will be agreed upon when you take out the loan, and you will make fixed monthly payments throughout the term of the loan. It is important to note that if you do not keep up with your repayments, your guarantor may be required to step in and make the payments for you.

Are there any early repayment charges for guarantor loans?

No, there are no early repayment charges for guarantor loans. You can repay your loan at any time without penalty.