Understanding Guarantor Loans

Guarantor Loans are designed for people who can’t get credit on their own.  This could be for a number of reasons, but mostly it is due to having a poor credit record.  With a guarantor loan, the borrower finds another person who will agree to take over the repayments if the borrower fails to pay.  As the loan is “guaranteed” by someone who has good credit, lenders are much more likely to agree a loan.

 

guarantor loans are designed for people with bad credit or who cant access credit
guarantor loans are designed for people with bad credit or who cant access credit

Your Credit History Doesn’t Matter

Unlike traditional lenders who base their decisions on the way you have handled credit in the past, your credit history is not important with a guarantor loan.  What is important, as with any loan, is that you can comfortable afford the repayments.  This is known as the affordability criteria and lenders must check that the loan will not cause you undue hardship.

Who Can Be My Guarantor?

Virtually anyone who meets the lenders criteria although your partner/spouse cannot act as guarantor.  It can be a relative, friend, work colleague – even your boss! They will need to be between the ages of 25 and 74 and have a good credit history. Although some lenders do prefer guarantors who are homeowners, it is possible for tenants to act as guarantors too.  They need to understand the risks of being a guarantor and accept that they will be responsible for repaying the loan if you can’t.

 

How Much Can I Borrow?

Guarantor loans are generally larger and longer term than doorstep loans or other bad credit loans.  The minimum you can usually borrow is £1000 over 12 months and the maximum is usually £7500 over 5 years.  As with any form of borrowing it is important to weigh up all the pros and cons carefully before making a decision.  This type of loan is a major financial commitment and you have to decide whether you could still meet the repayments if your circumstances changed.

How Much Will I Pay Back?

The depends on the amount you borrow and the length of time you need it for.


This is a representative Example from Trust Two who are a licensed provider of Guarantor Loans

Representative example: Borrowing £4,000 over 3 years at an interest rate of 34.0% p.a. (fixed), you will repay 36 monthly payments of £178.69. Interest payable £2,432.75. Total repayable £6432.75. Representative 39.9% APR.


What Are The Risks For A Guarantor?

As a guarantor, you agree to take over any repayments until the loan is repaid if the borrower cannot pay.  This is a significant financial commitment and should not be taken lightly.  You should trust the person who you are guaranteeing and feel comfortable in helping him or her.

 

What Can Go Wrong With Guarantor Loans?

In most cases, guarantor loans work well and the guarantor never has to step in to meet repayments. However, circumstances can change for both borrowers and guarantors so sometimes things don’t work out so well.  Be aware that this sort of agreement can cause a lot of stress for both parties, particularly if the borrower gets into financial dire straits.  If this is a family member it can cause big rifts within the family, and make things very awkward for a while.

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