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Guarantor loans can be most helpful for people who are trying to borrow money from lenders but are having a hard time getting approved because of bad credit. There are risks involved with this type of loans for the guarantor and the borrower so getting armed with all the facts surrounding this type of credit is very important.
What is a Guarantor?
When you act as a guarantor, you are guaranteeing the loan by premising that you will get the debt repaid if the borrower is no longer unable to. This is very risky on your part which is why it is best to only agree to becoming a guarantor for somebody you really know and trust.
Who Can Be a Guarantor?
There are certain requirements that a person must meet in order to be considered a qualified guarantor. Most lenders require guarantors to be at least 21 years old. It is important to have a good credit history and to be financially stable. Your credibility will also be boosted even more if you are a guarantor who is a homeowner at the same time.
When are Guarantors Needed?
A borrower is likely to ask you to guarantee their loan if they have no credit history and have never taken out a debt in the past since lenders will have no way of establishing how responsible a person they would be as far as their finances goes. People who are taking out a loan who are just starting a new job or are paid low might need a loan guarantor as well. More importantly, a borrower will need a guarantor if his credit score is low.
Things to Consider Before Becoming a Guarantor
Before becoming a guarantor, find out exactly what is the reason. If the person asking for your help happens to have a bad credit, find out first if they will be able to manage the repayments. They need to be responsible too. Assess if the loan is really necessary and if you’ll have the means to cover the loan repayments in the event that they will not be able to. Being a guarantor is a huge responsibility and involves a ton of risks for you. It may even possibly ruin relationships between people too, especially when the borrower fails to pay the loan back. So, being careful who you will agree to help is indeed very important.
When you are having a hard time obtaining credit, either due to a bad credit history or because you are not earning enough, a guarantor can help you get an approval.
This is an entity or a person that agrees to take on the debt in the event that the borrower defaults. Guarantors are only liable for the loan if and when the borrower fails to make the repayments. In addition, a guarantor is not released from the legal obligation of being attached to the loan until the debt has been successfully paid off.
Why Guarantors Work
Guarantors are required to have good credit and to meet certain income requirements by the lenders before they are approved. Typically, they can be the borrower’s relative or friend. Since they agree to take on the loan repayments in the event that the borrower is unable to do so, it becomes easier for the lenders to lend the money. As long as a borrower can present a suitable guarantor, it is easy for lenders to approve loan applications up to £10,000.
Benefits of a Loan Guarantor
Not everybody is able to take out a loan on their name alone. Some individuals and even businesses are unable to get a loan either due to lack of asset, no credit history, or a bad credit rating. The presence of a guarantor makes it possible for borrowers to get a loan and have access to funds that they may be able to use to invest on their homes, business, education, or personal lives.
If a borrower is unable to pay the loan back, it is the responsibility of the guarantor to take on the repayments. Most of the time, the repayment is often due immediately. Guarantors are going to be attached to the loan too until such time as it is fully repaid. So, it does have the potential to ruin the relationship between borrower and guarantor in the event of a default.