The concept of guarantor loan is not new but their growth in recent times has opened up an avenue for people to have access to unsecured credit. Those people who have made some mistakes in the past that may have resulted in lower credit score or they have not built up sufficient credit history. The repayment terms for these loans are usually longer than installment or payday loans; this is why they offer lower APRs. Guarantor loans are backed by a third party who promises to repay the loan should the borrower fail to keep to the terms of the loan agreement.
How Does Guarantor Loans Work?
Generally, guarantor loans are available for amounts ranging from $1000 to $10,000 with repayment periods from 1 to 5 months or more in some cases. They are different from standard unsecured loans as there are 3 parties to the agreement – the borrower, the lender, and a guarantor. The guarantor commits to settling the loan or making the loan repayment should the borrower fail to keep up with the loan repayment schedule. A guarantor can be anybody who does not have a direct financial link with the borrower; this means they can’t be your spouses or partner. Most lenders will look for a guarantor who has a good credit history and must be 21 or over. Most lenders will lend to borrowers with guarantors who are not homeowners provided the person has a good credit history. The interest on guarantor loans is charged on a daily basis so repaying it quickly can help to keep the cost of the loan to a minimum.
How to Deal With Guarantor Loan Debts
If you can’t afford to repay your guarantor loan or you fall behind at any point in time, the lender will ask that you catch up with payments. In this case, the account will default and the lender will ask the guarantor to make repayments. Also, the guarantor may be responsible for any extra charges on the loan. This will usually be dealt with using the normal debt collection process which could involve court action being taken or the debt being passed to a collection agency. Check here.
The Risk Involved
This situation places a significant risk on the guarantor; this is why it is important for both the borrower and the guarantor to be fully aware of these risks before applying for a guarantor loan. It could also affect friendships and relationships. Although the interest rates charged on guarantor loans are lower than installment or payday loans, they are still more expensive than traditional forms of credit. It is important for borrowers to be aware that the APRs charged on this loan can vary in some cases.
If you are having trouble getting accepted by lenders, having a guarantor can make it more likely to have access to credit. Guarantor loans have the potential of opening up larger sources of funding for those with less than perfect credit scores while also offering interest rates cheaper than either installment or payday loans. For more information visit: https://www.trusttwo.co.uk/borrowing-from-us/is-a-guarantor-loan-right-for-me