Everything you need to know about Guarantor Loans
Dec 9, 2019
What is a guarantor loan?
Put simply, a guarantor loan is a form of trust-based lending. If a friend or family member trusts that you will make repayments on a loan, then the lender should too. This requires the guarantor to co-sign the credit agreement, which means they are agreeing to step in and make repayments if you don’t.
A guarantor loan is most suitable for someone with less than perfect or no credit history as it increases their chances of being accepted. It effectively assures the lender that they will get the money back because the guarantor has made a promise to pay back the loan, should the original borrower be unable to.
To check your eligibility for a loan or to ensure you are in the best position to get lower interest rates, get your free* detailed credit report at: CreditKnowledge.co.uk. It’s a simple way to understand and monitor your credit report and score, 24/7.
What is a guarantor?
The guarantor for your loan must be a person aged between 18 and 75, with good credit history. If you are unable to make repayments, it will be the guarantor’s responsibility to do so; therefore, it is vital that they can afford it. This essentially means that a guarantor will only be approved if they have enough money to pay the debt, as well as handling their own finances. It usually helps if they are a UK homeowner.
Who can be your guarantor?
Your guarantor should be someone who knows you really well, or just someone who you are happy discussing your financial situations with. It’s very important that both parties understand and are comfortable with what is expected of them when you agree to take out the loan. It could be a family member or friend, but most importantly someone who is happy to help you out! In taking and repaying a guarantor loan, you can help increase your credit score. It can be almost anyone who meets the lenders criteria, which usually consists of any of the following:
- Aged 18-75
- UK homeowner / good credit
- Willing to pay if you don’t
If you don’t know a homeowner, don’t worry as there are also options for non-homeowners. Someone who is able to demonstrate that they have sufficient assets or wealth to cover the loan, is considered to be a trustworthy guarantor.
Are guarantor loans a good idea?
If you are able to make payments on a guarantor loan without any hitches, then they are absolutely a good idea! Whenever you repay a loan, the information is reported by the lender to a credit reference agency, which will update your credit score accordingly. Which of course means that your credit improves, making you qualify for lower interest rates on any future loans.
Before you apply…
Because guarantor loans often come with interest rates higher than average, it is worth exploring your options before applying, to see if you could save the money. The best loans are usually reserved for people with higher credit scores, so it would be good to try and improve this before hand.
It is also worth bearing in mind that guarantor loans can be more expensive than other types of loans. So make sure you need it before taking it out and make sure you can afford to make the repayments.
How do I apply for a guarantor loan?
Firstly, choose your desired amount and a term in which you wish to pay it off. For example, £500 over 2 months. Then you would need to give a few of your personal details, so we know who you are and if you’re eligible. Also we would need to know your full income details and your regular outgoings, to determine your affordability. After this, you’d need to give repayment details, so which bank account you would like the money to come out of and when. The final step is to let us know who you have chosen to be your guarantor.
What happens after I apply?
Our main goal is to ensure you receive your guarantor loan in the smoothest and quickest way possible. After completing the application, it’s important that we make sure you both understand your responsibilities and what is required of the guarantor if the borrower is unable to make any payments.
If the guarantor loan application is successful with one of our panel of lenders, the money should be paid out within 48 hours (depending on your bank’s processing time for payments received). It is also important to note that the loan is paid into the guarantor’s account for fraud protection reasons. It is then their responsibility to give the money to you.
The final thing you should know is that once the money has been paid out, the lender will keep both parties up to date with statements. Many lenders give the ability to see the balance whenever you want, by logging into your online account. Both you and your guarantor would have access to this information.
*3 day free trial, after which you will be charged £19.99 a month