Loans With a Guarantor
Guarantor loans are a finance option intended for individuals who have bad credit scores or lack a credit history entirely, who would struggle to get other types of finance such as a regular good credit personal loan.
About guarantor loans
These types of loans with a guarantor work by the borrower getting an individual with a good credit score, usually a friend or family member, to agree to be guarantor on the loan. This means that they agree to the lender that they will repay the loan if the borrower misses their repayments.
The Annual Percentage Rate (APR) offered on guarantor loans will vary depending on their duration and size, as well as by lender; this means that despite their being a more limited selection of guarantor loan products than other kinds of finance it is still wise to shop around providers to try and find the best deal available.
Being the guarantor on someone’s loan is not something that should be taken lightly, if the borrower does not make a repayment the debt becomes the guarantor’s responsibility to repay. Some guarantor loans are secured against the guarantor’s home, which means if neither the borrower nor the guarantor can repay the loan the lender could repossess their home.
Although specific requirements can vary by lender, general requirements for who can be a guarantor include:
- They must be aged at least 21 years old
- Have a good credit score
- Have a permanent UK address
- Have a bank account
- Some lenders may require them to be a UK homeowner
Before taking out a guarantor loan
In addition to shopping around lenders and products to find the best deal, a borrower considering using a guarantor loan to secure finance may wish to also consider alternative options and products. It may be wise to first check exactly what their credit score is to see if they may be able to get a better credit loan, as these are likely to offer a better rate of interest.
They may also want to think about alternatives to finance, For example; if the borrower has the funds in their savings they may want to use these instead because the interest rates they earn on their savings will in many cases be considerably less than the interest they would be charged for a bad credit loan of the same size.