What is a guarantor loan?
A guarantor loan is a way of borrowing funds for one of a variety of purposes such as car purchase, home improvements or debt consolidation and then repaying the monies on a monthly basis usually over a number of years. It is often made available to an applicant who has got into financial difficulty resulting in a poor credit rating meaning that they may not be able to obtain a conventional loan or, if he or she can arrange a bad credit loan, the interest rate may be prohibitive. The applicant would require another individual who has, amongst other things, a satisfactory credit history to act as a guarantor.
How much is it possible to borrow?
The amount you can borrow may vary between lenders but could be from say £500 to £7,500.
Over what term can you repay the loan?
The number of years that you can repay the debt may differ between lenders but could be for between say 1 to 5 years.
How do guarantor loans work and how can I apply?
You can usually apply online or over the phone and you should find that the application process is straightforward for both the applicant and the guarantor. You and your guarantor may be asked to provide proof of income, demonstrate your abilities to meet the loan repayments and will need to have your identifications and addresses verified.
Should the loan be agreed, the monies are usually quickly made available. Shortly thereafter, you will start to repay the amount you have borrowed usually on a monthly basis with the repayments coming out of your bank or building society current account by direct debit or standing order. Should you not be able to meet one or more of the repayments then your guarantor could be asked to pay it on your behalf.
Who can get a guarantor loan?
The eligibility criteria may vary between different lenders. You will usually need to be over the age of 18 and resident in the UK.
Homeowners or tenants may be accepted. You may need to be either employed, self-employed or retired and will need to be capable of meeting the monthly loan repayments.
Credit reference searches are carried out on both the applicant and guarantor. Many applicants with a bad credit history may be accepted but your guarantor must have a satisfactory credit history.
Are there any age limits for guarantor loans?
The age limit criteria may vary between lenders but the applicant will need to be at least 18 years of age
Becoming a loan guarantor
The criteria for becoming a guarantor may vary between different lenders. For instance, the guarantor may need to be a UK resident, between 21 and 75 years of age, either employed, self employed or retired and prove that they could meet the loan repayments if called upon to do so.
Agreeing to become a guarantor in respect of a loan for say a relative or friend is a serious commitment as, if the borrower, is unable to meet one or more of the loan repayments then the lender could ask you to make the missed repayments.
You may wish to obtain legal advice before agreeing to act as guarantor.
What is the typical APR of a loan with a guarantor?
The interest rates available on such loans may vary between lenders but are much higher than what you would pay if you had a good credit record and applied for a loan through the likes of your bank. However, generally speaking, you should expect to pay a lower rate of interest with a bad credit guarantor loan than you would with a standard bad credit loan that does not involve a guarantee being provided.
A bad credit guarantor loan may be suitable for people in certain situations such as when an applicant has a particularly poor credit history resulting in them being declined for a loan on their own, or only being able to obtain one at an unaffordable rate of interest. However, when taking out a loan with guarantor, he or she should be confident that they can meet the repayments, otherwise the guarantor may be called upon to pay, which could be embarrassing for both parties. There are a number of providers of guarantor loans, so you may wish to compare several loan options online, in order to try to obtain the best deal.