Different types of loans have become an essential part of our lives today. From routinely work to the major decisions, loans help us meet our financial needs. They are also the tools that help us meet a financial capability long before we actually can afford it.
Therefore, the financial market around the globe revolves around loan products. While some of them are specifically designed to cater to a certain need, you are free to use others as you want. Among the various different types of loans are Guarantor loans.
In the simplest of definitions, guarantor loans are the ones where a third party offers a guarantee to the lender that the borrower will pay the lent money back—hence the name ‘Guarantor Loans’. The guarantor takes the guarantee that the lender will receive the monthly payments even if the borrower is unable to pay.
Anyone can actually become a guarantor. However, in the most common circumstances, people close to you like a family member of yours or a close friend become the guarantor. There is a condition though. Whoever the lender is, he or she must not financially be linked to you in any way. Financial partners of any sort cannot become guarantors of each other in case a guarantor loan is to be opted for.
Following are some of the most important things that you need to know about this loan.
Secure or Unsecure
Guarantor loans are unsecured loans. They are the perfect option for people struggling to maintain a fair credit score, or for those who don’t have a credit score in the first place. This is one of the major things that differentiate guarantor loans from several other types. In addition to that, the fact that this is an unsecured loan also adds up to its favorability. Since they are unsecured, these loans do not require you to give any collateral, making it easier to opt for them.
It is a fact that guarantor loans come with quite high interest rates as compared to other loan options. However, on the brighter side, these are one of the least charged unsecured loans. In other words, the interest rates charged on several other unsecured loans are much higher than those charged on this type of loan.
Who Can Become A Guarantor?
Although guarantor loans are quite convenient for a borrower, it poses a few restrictions on who can become a guarantor for the borrower. To become a guarantor, the first thing that you need is to have a fairly good credit score. This is very important since you are the one taking a guarantee that if the borrower defaults, you will cover on his or her behalf. This is why you need to have a clear credit standing as well as a default free credit history to entice the lender to grant the loan.
Who Are They For?
Guarantor loans normally target a very specific group of people. It is designed especially for people who don’t have a good enough credit standing to get themselves granted a traditional loan. This loan instead focuses on the standing of the guarantor. By letting the borrower off the hook, the guarantor loans also allow you the chance to reconstruct your credit rankings.
In other words, guarantor loans are your key to stabilizing your credit ranking and making up for the pervious mistakes. However, this is only possible if you pay the monthly amounts on time.
Who Can Get A Guarantor Loan?
This is a loan in the financial market that is the easiest to acquire for anyone who needs it. But that does not mean that there is no eligibility criterion for this loan. Although small, there are a few things that determine if you can get this loan.
To get yourself granted a guarantor loan, you need to have passed the legal age in the United Kingdom. Furthermore, an active bank account and a proof that you are capable of paying back the loan with interest are also required. This proof of ability to pay must not contain any help from the guarantor. If you meet these few requirements, you are eligible for a guarantor loan.
How Is It Different From Payday Loans?
People, most often than not, confuse guarantor loans with payday loans or consider them more or less the same. Even though they are close alternatives of each other, these are not quite the same.
Among the major differences that you have is the amount that you get granted. In case of a guarantor loan, the amount that you receive ranges between a thousand and ten thousand pounds. On the other hand, payday loans have a fairly smaller cap on both of their upper and lower limits. A payday loan can offer your anywhere between eighty to a little over a thousand pounds.
Another major difference between the two types of loans in the United Kingdom is the terms for which they are offered. A guarantor loan is to be returned in between 1-5 years while the period for payday loans is very small. They must be returned in around thirty days from the grant.
The Guarantor Is Not Bound To Pay!
Your guarantor is not legally obliged to payback your loan. This means that if the guarantor backs off, you will be required to pay the loan back yourself one way or the other. So it is important to choose a trusted guarantor.
A lot of financial institutions in the United Kingdom offer guarantor loans which makes it difficult to select a specific product. In order to end up with the right one for you, use Quiddi Compare. Here you can compare all the different types of guarantor loans. This will help you analyze what different lenders are offering, consequently helping you to make a better decision.