What Is A Guarantor Loan?

What Is A Guarantor Loan?

What Are Guarantor Loans?

Guarantor loans are another form of personal loan where the borrower has to involve a third party (generally a family member or friend) as the guarantor. The person holds the accountability of loan repayment if the borrower can’t.

People go for guarantor loans in the UK when they have a bad or limited credit history. Therefore, they are unable to fulfil the lending norms prescribed by the lenders.

Loans remain in the name of the borrower, and they have the primary responsibility of loan repayment. Still, the presence of the guarantor brings some sort of security among the lenders on timely repayments.

Are Guarantor Loans a Good Idea?

Applying for loans with guarantor can be a good idea in specific financial circumstances. You need to first analyse their features and some key considerations before submitting the loan request.

Key features:

• Role of the guarantor: Despite not being the primary borrower, the guarantor’s role is crucial in repaying the loan on behalf of the borrower.
• Risk for Guarantor: Failing the repayment from the borrowers’ end can affect the guarantor’s credit score, too. Consequently, this can halt their good personal relations.
• Loan Terms: Most of the guarantor loan lenders keep the loan duration similar to standard loan options. It may be from 12 to 60 months.
• Importance of credit score: Loans can come with higher interest rates due to borrower’s poor credit scores. If the guarantor keeps up a good credit score, loan terms can be on the better side.

When Taking a Guarantor Loan Can Be a Good Idea?

• First-time borrowers: Many young adults are there with no or limited credit history. They may have trouble getting loan approval. Therefore, a guarantor loan may help them significantly.
• Long-term loans: In the UK, several individuals look for mortgages to buy a property. Managing loan instalments for longer duration can be tough. Including a house loan guarantor can be effective.
• Poor credit history: It is another primary reason to opt for these loans. People with bad credit can have the benefit of including a guarantor to secure a loan.

Who Can Become Guarantor for a Loan?

A loan guarantor in the UK is generally an individual who is financially stable and has the desire to take responsibility for loan repayment if the borrower defaults.

Here is who can become a loan guarantor:

• Family members: You can include parents, spouse, siblings or other members of your family to be your guarantor. This is ideal for those with first-time borrowing.
• Friends: A close friend can ask to be your guarantor if you both have strong trust. They should be comfortable in taking the risk.
• Business partners: If you are applying for a business loan, the guarantor can be your business partner. It becomes more beneficial if you both have the same financial commitments.
• Homeowners: Many people apply for guarantor loans with non-homeowners, but it does not make your application stronger. Try to add a homeowner as your guarantor and increase your chances of loan approval.

Eligibility Criteria to Be a Guarantor

• Your guarantor should meet the age requirements for a loan, which is between 18 years and 75 years.
• Person should have a decent credit score and steady income to show the loan repayment capacity. Lenders access their income, credit score and debt-to-income ratio.
• Lenders often prefer the guarantor to live in the same country or region where the borrower is living. They can easily approach the guarantor in case of default.

Are Guarantor Loans Easy to Get?

Loans with a guarantor can sometimes be hassle-free to get when compared to any other standard personal loan. These are easier, particularly for those with poor credit histories.

Here are the reasons proving why these loans are easy to get:

• Flexible borrowing terms: When you apply for a standard loan option, lenders strictly analyse your credit score, income or financial history. But in the case of a guarantor loan, lenders’ focus is more on the guarantor’s financial record. If your guarantor has been good on that part, then loan approval chances will be stronger.
• Lender is on minimum risk: The inclusion of the guarantor can be a significant relief for the lender. They work as the backup of the borrowers, and repayments will be there on time if the borrower defaults. With a lender on minimum risk, it brings an excellent opportunity for 100% loan acceptance.
• Ideal for first-time borrowers:  A loan with a guarantor is usually applied by those individuals who find it difficult to get a loan. These can be young people, education seekers, and individuals with limited or poor credit histories. With a guarantor, loan providers can approve their loan requests.

Can I Get Guarantor Loans on Guaranteed Approval?

Many loan providers promote their product with guaranteed approval or ‘high acceptance guarantor loans’. It is vital to understand that no loan can be guaranteed, even if you have a guarantor.

Here are the possible reasons:

• You need to meet the loan criteria: Most of the time, the term ‘guaranteed approval’ is misleading. Instead, you can get guaranteed acceptance only after meeting specific loan criteria. These will be subject to verification and mandatory credit checks.
• Despite the guarantor’s involvement, the lender will do a credit check of both the guarantor and borrower. If any of them do not meet the criteria, the lender may not approve the loan application.
• Guarantor’s financial record plays a major role: The guarantor’s current financial profile and credit score will be important during the approval process. A guarantor with bad credit is not suitable for your loan chances. Lenders may reject your loan application.
• Some loan providers do provide guaranteed approval for secured loans where collateral is involved, too. Despite that, there is a risk of losing collateral if the borrower defaults.
• Lender’s policies: Most lenders prefer to go through the monthly income and its capacity to repay the loan of both the borrower and the guarantor. Besides, they would also like to have a mandatory credit check, as the borrower has a poor credit history.
• A guarantor’s credit score also matters a lot, and lenders want good credit to reduce the risk factor.

Before applying, you need to understand the actual meaning of guaranteed approval. Some lenders do approve short term loans but with higher interest rates. Still, the guarantor’s financial situation maintains importance.

What is the guaranteed loan approval? It is more like a pre-qualification and guarantee that your loan will be approved if you meet the affordability criteria. It does not mean that a loan can be approved without credit checks.

How Can I Get a Guarantor Loan with Bad Credit?

• Choose an ideal person as your guarantor: Whether you have a family member, spouse or friend, your guarantor should have a good credit score, lower debt-to-income, and stable monthly income. If they are homeowners, then they have extreme chances of loan acceptance despite poor credit.
• Understand the loan risks: You are applying for guarantor loans from direct lenders or any traditional lending firm. Still, you should know all the possible risks involved with the loan. It is necessary not only for the borrower but also for the guarantor. In particular, they must be willing to pay back the loan if you default.
• Have a good relationship with the lender: You have a chance of applying for loans with bad credit. Therefore, having good communication with the lender is crucial. The best way to do this is to fulfil all the lender’s eligibility criteria. Besides, from the application process to repayments, you should share any difficulty with the lender to have the best solution.
• Loan comparison: You should research hard to compare various loan companies and their deals. Prepare a list of lenders and make a comparison of their interest rates. Always choose a reliable and responsible lender who has a better chance of having loans with a guarantor and low APR.
• Find alternatives: Since loans are not guaranteed despite the involvement of a guarantor, you can find other alternatives to guarantor loans. For example, you can look for collateral loans by placing an asset to secure the loan. Alternatively, if your guarantor can go one step ahead by becoming your co-borrower, you have other (or perhaps better) options in the form of joint loans.

How Do Guarantor Loans Work?

Guarantor loans in the UK from direct lenders can open lending doors for those with weak financial records. Of course, some risks are there, but still, you can get loans for an emergency situation.

Here is how loan application process online:

1. Decide loan amount and term: You should analyse your current financial situation and then decide the ideal loan amount and term.
2. Compare and choose the most affordable deal: Comparison is important, as this will give you a chance of getting guarantor loans on low APR.
3. Visit the lender’s website to fill out the online form: Your next step is to complete the online form with mandatory details and submit it carefully.
4. Wait for a few minutes to get the loan quote: Online lenders can share an apt quote on guarantor loans with no credit check upfront. Analyse it and give your acceptance.
5. Instant guarantor loans: Soon, you will receive loan acceptance, followed by the benefit of guarantor loans on the same day payout.

Frequently Asked Questions (FAQs)

1. I can’t find a guarantor for a loan. What should I do?
   Having a guarantor is mandatory to apply for this. However, if you are unable to find a person, then it is better to look for loans for bad credit with no guarantor. These are small loans available for smaller amounts and duration.
2. Can a pensioner be a guarantor for a loan?
   Yes, you can bring a person living on a pension to act as your guarantor. However, lenders will assess their income, age, and credit scores.
3. Can I be a guarantor for two loans?
   Yes, you can be a guarantor of more than one loan at a time. However, you can do so as long as you are in a financial position to manage the guarantor’s responsibility.
4. Can I change the guarantor on a loan?
   It is almost impossible to change the guarantor in between the loans. It is because the agreement has been signed, and loan repayments have already been started. There are rare situations where changing a guarantor can be possible, such as when a loan is in the early stage or early repayment.
5. Can I consolidate guarantor loans?
   You can easily consolidate guarantor loans by using personal loans. But doing so will remove the guarantor from the loan, and you will be only accountable for the repayments.
6. Do all loans need a guarantor?
   A guarantor is not mandatory for all loans. There are two scenarios. First, when you have applied for same day loans, which are approved on an instant basis. The best example is the availability of loans for very bad credit from a direct lender with no guarantor. Second, secured loans may not need a guarantor as collateral is involved.
7. Do guarantor loans affect credit rating?
   Every loan can have a positive or negative effect on your credit rating. Loans with guarantors are no exception. If you can afford the loan and repay it on time, it will certainly improve your credit rating. On the other hand, missing or defaulting the repayments can impact badly to your credit score.

John Milton

John Milton is an experienced financial writer and personal loan expert with years of experience identifying the right category for people. He has been Chief Financial Expert at LoanChester in the UK and provides insights on the big deals of the lending institution. He is known for transforming the loan policies as per the unique needs of different borrowers. First, he focuses on what the borrowers require according to their favourable and adverse financial stances, and then he focuses on making a variety of personal loans affordable. John writes well-researched content on personal loans and also guides borrowers regarding their unique financial conditions. John holds a Ph.D. degree in banking and finance.