Here we look at what Guarantor loans are and how they work.
Sometimes a loan company may want extra security when processing an application for a loan.
The most common ways for a loan company to get this is in the form of “security” (some collateral to hold against the loan; house, car or other valuable assets), or for a guarantor.
What is a guarantor?
According to the Investopedia website dictionary, a Guarantor is;
A guarantor is a person who guarantees to pay a borrower’s debt in the event the borrower defaults on a loan obligation. A guarantor acts as co-signer because they pledge their own assets or services in case the original debtor cannot perform their obligations.
So, What is a guarantor loan?
Short term loan / pay day loan or guarantor loan; these types of loans are designed for people that have less than perfect credit scores. However in order to get a short term loan or payday loan there is still a necessary level of being able to manage your current credit finances well.
In circumstances where someone can’t evidence this on their credit file, they are likely to search google for terms such as “short term loan – no credit check” which isn’t always a good option, as they may be offered a loan they simply can’t afford to pay back. Companies that offer this type of loan are unlikely to be regulated by the FCA. They are also likely to search for bad credit loans or bad credit history loans.
How do guarantor loans work?
A Guarantor Loan is another type of unsecured loan whereby the person borrowing is “guaranteed” by a third party known as a Guarantor.
This means that in the event you are unable to make the contractual repayments the Guarantor is obliged to repay the loan if you, the borrower, cannot.
Why use a guarantor loan?
So, instead there are lenders who will allow you to get funds via a guarantor loan. They use a friend or family member as the person responsible for the loan, with their permission of course, based on that friend or family members credit score. Here at Quid Market, we offer loans that don’t require a guarantor, we do look at your credit score but take many other things into consideration too.
How do you apply for a guarantor loan?
This works in pretty much the same way as when you apply for a loan from a direct lender or from a broker, you must supply your personal and bank details for both yourself and your guarantor. You can use a broker for guarantor loans, or go directly to direct lender by searching google for “direct lender – guarantor loans”.
Do any banks do guarantor loans?
Yes, there are some banks who offer a Guarantor loan. Usually, this is a secondary option offered by a bank if the applicant has little or no credit history, bad credit or a low credit score.
If your application fails the bank may then request you find a person to act as guarantor and you can then begin the application process again.
If you think you need to apply for a loan with your bank but are worried your credit score or credit history may affect this you can contact them to ask if they do a Guarantor loan.
Who makes a good guarantor?
This needs to be someone that has well to excellent financial history on their credit history. Usually a homeowner on a good income (employed) would best suit; some guarantor lenders do accept tenants too. Needs to be someone that understands the risk and understands that if you fail to repay they will be liable to keep up the repayments on your behalf. Your guarantor should be well aware of these ramifications before entering into the guarantor loan.
Should I be a guarantor for a loan?
Being a guarantor for a loan is a serious financial commitment and so there are risks and responsibilities involved.
If the person taking the loan fails to make the payments then you will be responsible for this. Some lenders may chase you for the repayments if one instalment is missed.
Check if any charges or fees apply to you as the guarantor should any payments be missed.
Also, when the loan is funded it is usually paid into the guarantor’s bank account. If this happens you will need to ensure you have the facility to receive and transfer the funds.
Who can be a guarantor?
Anybody who is eligible to apply for a loan themselves, based on the individual companies criteria can be a guarantor.
Usually, a guarantor could be a family member or close friend. Anyone who does not hold a joint bank account with the main applicant.
Do I need a Guarantor for a QuidMarket loan?
No. QuidMarket do not provide guarantor loans, but we do provide Short Terms loans.
Your application will then be processed by our underwriters who will perform an affordability assessment.
For any further information about the loan application process, please read our “How It Works” page.
Warning: Late repayment can cause you, serious money problems.
For help, visit: moneyadviceservice.org.uk