Guarantor Loans Explained
Guarantor loans are perfect for people with bad credit or individuals who have never borrowed money before. Most banks or creditors are being much more careful about who they are lending to especially since the credit crunch and if you have no credit history it will be hard for them to know whether you will make the repayments on a loan which is too much of a risk for them.
So how does a guarantor loan work? The applicant looking to take out the loan will need to find somebody to act as a guarantor for them. The guarantor will need to have a good credit standing. Anybody can act as a third party for the loan but in general it is normally a family member or close friend that helps.
The guarantor will need to vouch for the applicant, so they must make sure they fully understand the role they are undertaking before signing on the dotted line. The good thing about the guarantor loan is that the applicant can actually restore their bad credit by using their guarantor's good credit to better their own, provided they keep up with all the payments.
It is a huge risk for the guarantor to act as a third party for this loan especially if they are not close to the applicant, that is why the guarantor is normally a relative or close friend. If the borrower does default on the payments, the guarantor's assets should be safe because it is an unsecured loan. If the loan is not being paid and no agreement can be made between all parties then the creditor could decide to go to court and turn this into a secured loan, to try and recover the funds lost, this would only be used as a last option.
Contrary to popular belief the guarantor loan is not much more expensive than a normal unsecured loan. The people who are more likely to opt for this loan are individuals who have no credit history or a bad credit score. The applicant can have peace of mind that the loan and interest rate is assessed on the guarantors credit history not their own.
Closing Comments
Guarantor loans are great for people who need to restore their credit or to get a credit score behind them. When looking to obtain and enjoy the benefits a guarantor loan can provide, it is essential to make sure you can afford the repayments on the loan before committing to anything. With any type of loan it is always wise to shop around for the best deals.
About the Author
Steve Smith writes for All About Loans where visitors can apply for UK self employed loans and also focuses on secured loans , and bad credit secured loans for UK homeowners. Visit Today: http://www.allaboutloans.co.uk
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