However much we all desire to have good credit ratings, life happens and things beyond our control. You might need a loan but due to your bad credit history, chances are most financial institutions will refuse to give you a loan or might give you with insanely high-interest rates. This is where guarantor loans come in handy. The good news is same day guarantor loans are increasingly becoming common today.
What is guarantor loans?
A guarantor loan is a loan type in which a person with bad credit is given A loan using the credit ratings of another person (probably a close friend or relative). The loan is based entirely on the guarantor. Amazingly you could even get lenders giving guarantor loans instant payout.
Who can act as your guarantor?
A guarantor should not be financially connected to you and must be 21 years and above. He/she must have good credit history and in some countries, must own a property. This loan is unsecured in nature and the guarantor is perceived as the security.
What requirements are needed to be eligible for a guarantor loan?
You must be 18 years and above (might be different for some countries), must have a bank account, must not be bankrupt and must be a resident of that country. Read more.
How much interest will you pay?
The interest rates will depend on the lender. Chances are you will be able to get a high amount of money with very little interest if the guarantor has amazing high credit scores.
What if you default payment?
In case you default payment, the bank will ask the guarantor to pay. You will be chased for the remainder of the loan and any interest built up. If the guarantor defaults payment then the bank can take you both to court.
For a person considering to be a guarantor:
What questions should I consider before agreeing to be a guarantor?
- Why does the borrower have a bad credit history?
- Is he/she responsible enough to pay?
- Does he/she really need the loan?
- Are you willing to risk your property as security should the loan fail to be paid?
How should you protect yourself as the guarantor?
Limit your liability. Do not cover all your borrower’s obligations including other debts like car loans etc. It is safer to have a limited guarantee (guarantee agreement limits the amount you guarantee).
Never forget to ask for the documentation. Ask for the credit agreement which will state the payment schedule and the terms of the credit. This is usually given with two weeks after signing the guarantee contract. Also, ask for the guarantee contract a proof of your agreement. If the borrower defaults payment, he/she is issued with repossession notices that the lender must send to you too. If there are changes in the credit contract, the borrower should inform you. As a guarantor, you can take the creditor to court if you think the credit terms are oppressive.
Finally, guarantor loans are a good, easier and cheaper way to get loans. But both the borrower and guarantor should be very careful before taking one because a default in payment will do a number to their creditworthiness and lower their score greatly. Check out more: https://www.trusttwo.co.uk/borrowing-from-us/is-a-guarantor-loan-right-for-me