Guarantor loans are a form of lending that allow you to access borrowing when a bank may have turned you down.
If you haven’t got a vehicle for a logbook loan or a house for a secured loan then a guarantor loan could be ideal.
How Do Guarantor Loans Work?
The loan is taken out in your own name and you are responsible for paying it. You simply provide a third party such as a relative or friend who, should you be unable to repay the loan, will step in and pay it in your place.
Who can guarantee my loan?
Pretty much anyone can be your guarantor. They must be aged between 21 and 75 and have a suitably good credit history. The person guaranteeing your loan can be a relative, a friend or even a work colleague but they cannot be your husband or wife.
Most UK guarantor loans will require the guarantor to be a homeowner with enough equity in their property to cover the value of the loan; however some lenders may be flexible. The person acting as the Guarantor will need to provide employment records and bank statements and will most likely be required to undergo a credit check.
What are their responsibilities?
A guarantor will only be called upon if the borrower fails to make a repayment to his or her loan and they will generally be contacted within 48 hours of a failed repayment. If a borrower misses a repayment, the guarantor can make the repayment on their behalf and the loan remains the responsibility of the initial lender, however if a borrower defaults on the entire loan then the guarantor will become liable for it.
If the guarantor is unable to repay the loan then they will receive all the associated penalties and their credit rating is very likely to be negatively affected.
What do these type of loans cost?
Rates vary from lender to lender and frequently vary based on a borrowers / guarantors employment status and / or credit history. They typically have APRs of circa 50%. Repayment periods generally range from 1 to 5 years and the amounts that can be borrowed are generally between £1000 and £7500.
It is very important to be aware that some lenders charge ‘up-front’ and arrangement fees. When taking out a guarantor loan, be certain to look for these hidden fees, as they are increasingly common and can potentially be extremely expensive.
Why choose a guarantor loan?
This form of loan could be a good alternative option if you have experienced credit issues in the past and do not have a vehicle suitable for a logbook loan. If you have a family member or friend that is comfortable being your guarantor i.e. they will take responsibility for your loan if you don’t keep up your repayments then this keep be a great way for you to borrow money.
Guarantor loans alternative: logbook loans
If you are unable to find someone to be your guarantor or you just don’t want to take out this form of loan, a logbook loan could be a good alternative. A logbook loan uses your car as security instead of you having to provide someone else to pay your loan off if you default.