What is a guarantor loan?
A guarantor loan is a solution to borrowing money if you have little or no credit score, meaning you are unable to be approved for any other personal loan. Applying for a guarantor loan means that you could be able to borrow more money than what you would be accepted for with any other sort of personal loan. The reason that this is possible, is because there has to be a third party that agrees to take on the responsibility of the loan if you are unable to. These are known as the guarantor. However, this is a decision that should not be taken lightly, on both parts. As long as you stick to the agreement between yourself and the lender, this will also improve your current credit score.
How much can you borrow with a Guarantor loan?
When applying for a guarantor loan, many factors are taken into consideration by the lender when deciding how much you can borrow. Typically, the loan can be for anything between £1,000 and £15,000, but the final decision is made once the circumstances have been evaluated. The credit history of yourself and the guarantor, and the overall financial situation of both parties are some of the most important details. If they do not believe that either of you can afford the repayments, then it will not be possible. The lender will also want to know factors such as, what the money being borrowed is for, if they do not see it being a reasonable reason to take out a loan then they will not accept the application. The most common reason people apply for guarantor loans is to help with buying a car or making improvements to your home. Money cannot be borrowed to pay off previous debts.
Who should be your guarantor?
When choosing someone to act as your guarantor, there are essential standards that must be met to make them eligible. This person must be a family member or close friend who is over the age of 21. Sounds simple enough right? Wrong. This person must also be in a stable financial situation in the lender’s eyes so that they can make repayments if you cannot. This is a huge responsibility, for both parties, so when asking someone to be your guarantor, or if you are the one being asked to be one for someone else, make sure that you can trust this person, and that it will not backfire on either of you.
Should you be someone’s Guarantor?
If you are the person being asked to be a guarantor, it can be a difficult decision to make as to whether to agree to it. There can be risks, for yourself and the person applying for the loan.
Just because you may be financially stable at the moment, this doesn’t mean that your situation can’t change. If you have a family, can still support them. What if you lose your job? Can you afford to make repayments as well as having enough money for your own everyday needs? What if something happens between you and the original applicant, a disagreement of some sort? can you guarantee that this person will still responsibly make their repayments and not leave it all on yourself?
If you do find yourself in any of these situations, then this can have a negative consequence on your credit score, which could lead to legal proceedings from the original lender.
Written By: Jessica Eden