A VIDEO GUIDE TO GUARANTOR LOANS | HOW GUARANTOR LOANS WORK | THE PROS & CONS OF THIS TYPE OF LOAN


Hello and welcome to Solution Loans. This
short video covers a guide to guarantor loans. Guarantor loans may not be new but their recent
growth has opened up an avenue of unsecured credit for people who are finding it hard
to obtain it. This may be because they have not built up sufficient credit history or
because they have made some mistakes in the past which have resulted in a lower credit
score. Repayment terms for guarantor loans are longer than for either payday or instalment
loans and therefore offer correspondingly lower APRs. The loan is backed by a third party – a guarantor
– who promises to repay the loan should the borrower fail to keep to the terms of the
loan agreement. By having a third party guarantee the loan repayment schedule, the lender does
not have to give such close consideration to the creditworthiness of the borrower. As
a guarantor loan is unsecured no assets are put at risk. So, how exactly do guarantor loans work?
Guarantor loans are generally available for amounts from around £1,000 to in excess
of £10,000 with repayment periods from one year to more than five in some cases. They
differ from standard unsecured loans in that there are three parties to the agreement – the
lender, the borrower and a guarantor. By signing the credit agreement, the guarantor commits
to making the loan repayments or settling the loan should the borrower be unable to
keep up with the loan repayment schedule. A guarantor can be anybody as long as they no have a direct financial link with the borrower which therefore excludes spouses
or partners. Most lenders will look for a guarantor to be 21 or over, have a good credit
history and, in some cases, be a UK homeowner. Many lenders will now lend to borrowers with
guarantors who don’t own their home provided that this person has a good credit record.
In both cases, even though the lender may not place huge emphasis on the borrower’s
credit history, it will still expect them to demonstrate that they can keep up with
the repayments. Much smaller guarantor loans are also available where a borrower can apply
for anything between £50 and £750 over a short time period. These, unlike payday
loans, are repayable in instalments. Interest on this kind of guarantor loan is charged
daily so repaying quickly can keep the cost of the loan to a minimum. So why would you apply
for a guarantor loan? If you’re new to the credit market and don’t have a sufficient
credit history or if past difficulties have left you with a less-than-good credit rating,
it can be difficult to raise the money for larger purchase such as a new car. If you are
in this position then you may want to consider a guarantor loan. It could open up access
to larger loans than other forms of credit traditionally offered to people with lower
credit scores. Interest rates for guarantor loans are generally lower than for other forms
of unsecured lending where there is a credit history issue to be catered for. You can borrow
money at an average APR of 45% – 50%. If you need money quickly and have had trouble sourcing
other forms of credit like unsecured loans or credit cards, then a guarantor loan could
be a fast solution. If you meet the criteria for eligibility, then guarantor loans are
usually paid direct to a bank account within 24 hours of the application being completed.
So what are considered the downsides? If a borrower should fall behind on repayments then the guarantor
will be legally bound to either bring the schedule up to date or repay the loan in its
entirety depending on the terms and conditions of the agreement. Furthermore, the guarantor
could also be liable for any extra charges on the loan. It is therefore extremely important
that both the borrower and the guarantor are fully aware of the ramifications of a potential
breach of the loan terms and conditions before applying for a guarantor loan. Friendships
and relationships are also at risk. Although the interest rates charged are lower than
for payday or instalment loans, guarantor loans are still more expensive than traditional
forms of credit. Borrowers should also be aware that in some cases, the APRs charged
on a guarantor loan are variable. So, in conclusion. Guarantor loans could potentially open up
larger sources of funding for borrowers with less-than-perfect credit scores while keeping
interest payments vastly cheaper than either payday or instalment loans. If you’ve had
trouble gaining finance from High Street lenders then having a guarantor
may make it much more likely that you’ll be accepted for this type of credit. Most
guarantor lenders will even let you repay early without incurring any extra charges.

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