If you are looking at different loan types, you may have come across guarantor loans or you may have seen them advertised. You might wonder about them and try to think about who they are for. It is good to have a better understanding of them and then you will know whether they will be suitable for you.
How do the Loans Work?
A guarantor loan is a loan where the borrower has a poor credit record and so cannot get a loan on their own for a significant sum of money. They will be able to borrow usually between £1,000 and £10,000, but as this is such a large amount of money, the lender will want them to nominate a guarantor. The guarantor will need to have a good credit record and will agree to cover the cost of any repayments that the borrower fails to make. Normally these repayments will be monthly and how much they are and how many there are will depend on how much money is borrowed.
Who are They For?
The guarantor loans have been designed to help out those that have a poor credit record but need to borrow a significant sum of money. It used to be the case that if you had a poor credit record you would not be able to borrow any money at all as lenders would look at your credit report and reject you. However, payday loans came along and were deigned to specifically help out those with a poor credit record to borrow money. The borrowing amount was only between £100 and £1,000 though and so it was not enough for some borrowing needs. Then guarantor loans were developed which allowed borrowers to have access to £1,000 to £10,000. This is a much more significant amount of money and can potentially be much more helpful. However, lenders were taking a big risk lending this much money to people that had a poor credit report. Therefore, they put an additional protection for themselves in the guarantor loan, where they make sure that the lender has a nominated guarantor who will have to cover the repayment if the borrower does not manage to pay it. This means that the borrower has to know someone who has a good credit report and that has enough money to be able to cover the repayments as well. They will also need to be prepared to make these repayments if they need to. It will mean that the borrower will need to have a conversation with the guarantor to explain what they want and ask them for help, which can be tricky. They will also need to discuss what might happen if they cannot repay the loan and what the guarantor will be expected to do. Then they should discuss what they will do with regards to repaying the guarantor.
So, a guarantor loan is for someone with a poor credit record that needs to borrow a significant amount of money and knows someone that can be a guarantor for them. Like all loans they need to be used with caution. It is always a good idea to make sure that your borrowing is necessary and worthwhile and so you can make sure that you are confident you will be making the right decision when taking on a loan. You should also make sure that you are using the best type of loan for you. By having a good understanding of what your needs are and what different lenders are able to offer, you should be able to match that up and find the most suitable loan. Then when you have picked the right type of loan you can compare the lenders who are offering it so that you can find the one that is best suited to you.