How Do Guarantor Loans Work
What does guarantor loans mean?
Guarantor loans as the name suggests need a guarantor who can be borrower’s friend, relative or even colleague and is ready to help the borrower in getting additional financing. In this case, the guarantor will act like a back up to the borrower. So, the guarantor will be taking responsibility of the borrower. Please note, that the guarantor should have good credit rating and should be ready to pay back loans if in case borrower is incapable of repaying loans on time. These loans are a perfect option for someone who has poor credit score or low credit score provided that the person has a guarantor who is capable of managing loan repayment on behalf of the borrower.
Who can be a guarantor?
As mentioned earlier in this article that for guarantor loans, anyone from your family or even a friend or colleague can be a guarantor. But there is specific eligibility criteria set for the guarantor. Do consider referring to the criteria first before proceeding to apply for these loans. In case of these loans, the biggest lookout for lender is if guarantor is able to make sure about loan repayment or not.
For what purposes can guarantor loans be used?
Any individual requirement like buying a car, paying for a wedding, medical purpose etc can be fulfilled by guarantor loans. Please bear in mind that these loans don’t allow you to use obtained sum of loan for any commercial or business purposes. These loans are meant for person who are facing credit issues or are borrowing money for the very first time.
What can guarantor loans help with?
In case of these loans, you will be having a second person as guarantor for the borrowed amount of loan. These loans should be considered as last resort to you if you are suffering from credit issues and have been denied loans elsewhere also. So, these loans can be used to improve credit scores provided that you pay back the loan amount with interest on time. Do check your credit rating ahead of making application for these loans. Everything will work in your favor if guarantor considers you trustworthy and believe that you are able to make repayments on time. At the same time, the guarantor should also be prepared to manage repayments in the event if you fail to return the loan amount as per schedule. This unsecured loan can be obtained without requiring you to provide any collateral or costly asset in favor of the loan amount that you want to borrow.
How to find out if these loans are expensive or not?
Guarantor loans can be expensive than traditional loan options. It is because these loans are intended for borrowers who have bad credit scores or no credit scores. The most convenient way to find out if rates are affordable or not is by comparing loan offers that have been proposed to you. The total cost of loan depends on various factors like your employment status and credit scores. Competitive rates can be obtained by drawing comparison using online tools. These loans might carry hidden fees. So, to find out about rates and fees, you also need to go through the loan agreement carefully. Despite the fact that rates could be high, your chances of getting these loans are good due to that ‘guarantor’ factor.
Is there any risk involved with guarantor loans?
The word ‘loan’ itself signifies risk. These loans are also not an exception. The downside of getting these loans is that you may get trapped in spiral of debts. Plus, you may bring harm to your credit rating by not repaying loans on time. In worst case, you should be ready to face any legal action taken by the lender.
How can you choose the right loan and apply for it?
Evaluate how much you should borrow and decide how long it can take to repay loans. Then look around for best offers. Once desired rates are obtained, you can proceed to submit application for guarantor loans. In the loan application, you just need to provide details about you and your guarantor. Share valid details based on which lender can take decision about approval. In some cases, the loan money is also handed over to lender for security reasons.