- Why is a guarantor loan cheaper?
- What will happen if I can’t repay my guarantor loan?
- Should I be a guarantor? What to consider.
- How to limit a guarantor’s liability.
Guarantor Loans UK
In the UK, guarantor loans are becoming more and more popular. Advantages of this type of loan include lower interest rates and a potentially more lenient credit check. However, do you know what will happen should you fail to meet a repayment? And what should you do if someone asks you to be their guarantor? Let’s start by clarifying the definition of a personal guarantor loan.
What Is A Guarantor Personal Loan?
Guarantor loans are a type of unsecured loan. The guarantor signs the loan in addition to the lender and borrower. The guarantor undertakes to repay the loan should the borrower default on the repayments.
Loans with a guarantor are typically taken out by young people who have never previously borrowed or by people who have a poor payment history, i.e. people with a non existent or low credit score. It can be very difficult for young people to get a loan without a guarantor. Some people who have a poor credit history end up taking personal logbook loans, secured on their car, and this usually means a higher rate of interest.
Guarantor Loans Low APR
Although rates are high according to market standards, this kind of borrowing has rates that are lower than those for payday loans. Interest rates range from 39.9 to 49.9 per cent and average 46.3 per cent (source CAB).
Anyone who is having trouble getting accepted for cheap personal loans by traditional methods may be able to get the amount of money they want to borrow by asking a guarantor to co-sign the application.
The concept of having a guarantor is not a new one. Before banks introduced credit ratings as the de facto way to assess loan applications, lenders requested guarantors. Even today many landlords ask young or new tenants for a guarantor and some mortgages are still issued on this basis.
FAQs about Guarantor Loans
Who Can Apply For A Guarantor Loan?
Anyone can ask for a guarantor personal loan for instant personal loans. Most financial organisations will lend money for a large purchase as long as they are happy that the guarantor is suitable. In addition, young people may have more success securing a mortgage for their first home if they can come up with a guarantor.
A poor credit score often means that an applicant can only borrow a specified amount of money. However, you can get a higher amount with a guarantor. Bad credit applicants for loans with no guarantor may have difficulty being approved. Although, there are some lenders on the Monevo panel of lenders who specialise in bad credit personal loans, so it’s worth applying. Loans with no credit check and no guarantor are non existent.
Who Can Become A Guarantor For A Personal Loan?
There are a wide number of people who can act as a guarantor for a loan. Your bank accepts individuals not financially linked to the applicant, i.e they should not be your spouse or partner, but you can ask a sibling, a work colleague, an employer or a friend.
A guarantor must be over 21 and have a good credit record. Some lenders insist that guarantors are homeowners. Guarantor loans are not secured on the property of the guarantor. This means there is no chance of the home being repossessed. Some lenders insist on the guarantor having a minimum monthly income. Amounts for this minimum monthly income will vary according to the different criteria used by the lender.
All guarantors are subject to the same kind of credit checks as those that a loan applicant is subject to.
How Much Can I Borrow On A Guarantor Loan?
Amounts on offer for guarantor loans will vary. Typically, your lender might offer you amounts between £1,000 up to £10,000 over a term from one to five years. In addition to obtaining the funds that you need, as long as you make the payments on time, having this kind of loan can help to build up your credit rating for the future.
As with all flexible personal loans, the borrower and the guarantor must both be residents of the UK. Both must hold a UK bank account in order to be accepted. Additionally, both parties must provide sufficient proof of identification and address to satisfy the bank’s money laundering regulations.
How Much Interest will I Be Charged on a Guarantor Loan?
Just like all other personal loans, the amount of interest charged for a guarantor loan will vary. It varies according to the personal circumstances of the borrower and guarantor. The amount borrowed and length of the loan will also affect the interest rate. So, credit worthiness is a major factor in the interest rate that your lender will offer to you.
Guarantor Personal Loans
Not all banks or financial institutions offer guarantor loans. However, there are several trusted lenders for you to look into if you do need a guaranteed personal loan. Additionally, some lenders specialise in this kind of personal loan. You can look through some of the many money websites to find which companies can provide guarantor loans with low APR. You will also be able to make comparisons between interest rates and terms in order to obtain the best deal.
Each company may have slightly different criteria regarding the status of borrowers and guarantors. They will also list the disadvantages and advantages of going ahead with this kind of borrowing.
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Repaying Your Guarantor Loan
If you miss any payments, or if you default on the loan, the guarantor will be asked to cover the loss to the lender. A lender may also take you and the guarantor to court for the principle amount and the outstanding interest owed.
It is important to be aware that asking someone to be a guarantor for a personal loan and then defaulting on the payments is going to damage your relationship with them. This situation could also cause strain in a family relationship with a parent or sibling. So think carefully before entering into this kind of arrangement to borrow money.
What Happens If I Cannot Find A Guarantor For My Loan?
In this instance it might be a good point to stop and ask yourself whether borrowing money is the best option. If you are unable to find someone who has enough faith that you will make the repayments then seeking financial advice from a body like the Citizens Advice Bureau or a debt charity like StepChange might be a better idea. If you decide to go ahead with applying for a loan, Personal Loans Now offer non guarantor unsecured personal loans for bad credit. Apply today for a fast decision.
Being A Guarantor
If someone you know asks you to be a guarantor for their loan, what should you do? What do you need to consider?
Becoming a guarantor on a personal loan is not a step that should be lightly undertaken. No matter how close your relationship is, when money becomes a major factor between friends it can cause friction. It can even cause permanent damage to a relationship.
A guarantor on a guaranteed personal loan is responsible for paying off the debt should the borrower default on payments. This is a risky choice. You should fully understand your obligations and the effect it could have on your own credit rating and future borrowing.
Should I Guarantee A Personal Loan For My Friend?
First, ask yourself the following questions.
- Why would they need a guarantor?
- If they have a poor credit rating, does this mean they will have a problem in keeping up with the repayments?
- Do you trust the person to be responsible? For example, have they borrowed money from you in the past (even small amounts) and paid it back?
- Is the loan really necessary or could they save up and wait for what they want to buy?
In addition, it goes without saying that guaranteeing a loan to pay off existing debts is definitely a no no.
But perhaps, the most important question to ask is; are you able and willing to pay off the debt if the borrower does default? This situation could also involve costs for debt recovery and may leave you with a loss to your respectable financial reputation. If in doubt it is always better to take some legal advice before taking on the role of guarantor for a personal loan.
Figures from the Citizens Advice Bureau show that the growth of guarantor loans is 30% from 2013 to 2014
How Will I Be Affected If I Guarantee A Personal Loan?
A default on a guarantor loan may result in it being registered on your credit report. In addition, you may well get a county court judgement lodged against your name if the matter goes to court. Conversely, as long as the borrower does pay up on time, the amount borrowed will not show up on your credit report as a debt.
Limiting The Liability Of A Guarantor
Some guarantor loan agreements cover all of the borrowers debts so even though you think you are only going to be liable for repayments on a loan to buy a car, you could end up guaranteeing the person’s credit card debt as well. A guarantor should always insist on a ‘limited guarantee’ agreement for an unsecured personal loan.
Ask For A Copy Of The Guarantor And Credit Agreements
This is very important as these documents will tell you about the payment schedule and the obligations of being a guarantor. Unless this contract is received in writing and signed it cannot be enforced.
You must receive a credit contract within 15 days of the signing of the guarantee contract. Any changes to the contract must also be sent to the guarantor and the lender must also send a copy of any other paperwork that has been sent to the borrower.
Any notice of repossession must also be sent to you. If you do not receive any of these documents, it can limit your liability as a guarantor.
Finally, make sure that you have a written agreement with the borrower if you intend to guarantee a personal loan. Your lender can draw this up to state that the borrower keeps you up to date with their financial situation and any decisions they make, how much is in their bank account and most importantly, who is responsible for repaying the loan.
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After reading this article you should understand the definition or taking out a loan with a guarantor. You should know who can apply for a loan with a guarantor, and who can choose to become a guarantor. We have mentioned interest rates and explained defaulting on payments. Should you want to look for a guarantor loan you will know where to find one.
You should feel informed, as a potential guarantor, as to how you can be affected if the borrower does not make the repayments. Nwo you will know about important contracts and documents that a guarantor needs to receive about the personal loan.
They can be cheaper, but it’s usually hard to find someone who will agree to be your guarantor. Additionally, if you do struggle to repay the loan, it will affect your relationship with your guarantor. If you decide to go for a non guarantor loan, Personal Loans Now have access to a wide range of direct lenders ready to offer you loans, if you are approved. Apply today for a personal loan.