You may have a basic idea of traditional loan products, such as credit card loans and mortgage loans. While these loan products are more common in the financial world, there are other products that are perhaps not as common, but are even more useful in terms of allowing people to get their required finances. From routinely work to the major decisions, loans help us meet our financial needs.
Let’s dive into the subject to take a look at how guarantor loans work.
What is a Guarantor Loan
Simply put, a guarantor loan is one where a third party provides guarantee to the creditor that the borrower will repay, hence the name ‘guarantor loans’.
Financial guarantees are already a normal procedure in many financial assessments. The guarantor takes the guarantee that the lender will receive the monthly payments even if the borrower is unable to pay. Thus, guarantor loans are a form of unsecured loans which require the borrower to present an individual who readily promises repaying the loan on the behalf of the borrower if they default on their payments.
Guarantor loans have become popular in the last decade or so. Often considered as an alternative to the more risky payday loans, people with an overall poor credit score often find that a guarantor loan is the only choice available to them to meet their short term financing needs.
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, however, a financial risk for people who decide to provide these guarantees. Most of these guarantors though, do not understand the liability of offering these guarantees such as a drop in their own credit ratings and reliability for future loans.
Eligibility to be a Guarantor
There are certain conditions that have to be met before anyone can be a guarantor.
Financial partners of any sort cannot become guarantors for each other. You need to have a very good overall credit score. You are taking a guarantee that if the borrower defaults, you will cover on their behest. So obviously, you need to have a good standing in terms of credit history and management of finances.
Who Are They For?
Recent survey statistics say that almost 25% of Brits can not apply for a traditional bank loan owing to their low average score, thus affecting their eligibility for normal bank loans.
Guarantor loans normally target this very group of people as it provides those people with a safe financial instrument who can neither access loans directly through bank nor apply for credit cards due to a low credit score.
Having said that, you should not assure that there no eligibility criterion for guarantor loans.
According to British law, you need to be a native adult who is over 18 and have proof that you will be able to repay the loan along with monthly interest payments. Moreover, you must have an active bank account.
Interest Rates (APR)
Guarantor loans often charge higher interest rates as compared to other loan options.
The guarantor loans are available at a lower APR when compared to payday loans, but generally have higher interest rates when compared to the traditional bank loans. However, on the brighter side, these are one of the least charged unsecured loans available on the market!
Are Guarantor Loans Secured?
These are intrinsically unsecured loans. This is one of the major things that differentiate guarantor loans from other types of short-term loans available in the market.
However, as they are unsecured, there is no requirement to provide any collateral, thus making them easily accessible for those struggling to maintain a fair credit score or for those who don’t have a credit score.
Is the Guarantor Bound to Payback Your Loan?
The guarantor cannot be legally obliged to payback your loan. This means that if a given guarantor were back off, you will be required to pay the loan back yourself one way or the other.
A number of institutions in the UK provide guarantor loans. Hence, it might be difficult when it comes to selecting the best product available for your financing needs. The best bet is to use a website which offers to compare all the different types of guarantor loans. Quiddi Compare helps you compare as well as analyze what different lenders are offering in order to make the best decision.
Are they any different from Payday Loans?
People seem to confuse that guarantor loans and payday loans are the same.
Even though they share quite common features, however both of these have equally different characteristics.
The significant most difference between a payday loan and a guarantor loan is that in the United Kingdom, the law requires a guarantor loan to be returned within a period of 1 to a maximum of 5 years time. On the other hand, the repayment period for payday loans is quite narrow, often 30 days.
Both of these loans differ in the amount that you can be granted. In case of a guarantor loan, you may be eligible for at least a thousand to 10,000 pounds. However, when it comes to payday loans, they usually have a fairly smaller cap on both, the upper as well as the lower limits. The amount in a payday loan varies from anywhere between eighty pounds to a little over a thousand.
To compare what kind of loan you should get to bring your score up, visit https://quiddicompare.co.uk and see what’s the best loan available when you are in a bad credit score situation.