A combination of higher property prices and rent fees has made it extremely hard for the younger generation to save up for a deposit for their first mortgage. One potential route for those struggling to save money is using a guarantor to help secure the much need financial boost. This short guide explains what a guarantor is and what the benefits of guarantor loans are.
What Is a Guarantor?
To put it simply, a guarantor is somebody who takes responsibility for credit on somebody else’s behalf. If a guarantor takes on this responsibility, then they become liable to make the loans repayments if the borrower cannot afford to do so. On the flipside of that, if the borrower can afford to pay the loan on time and with no issues, then the guarantor will not need to take action and have nothing to be worried about.
There are many different reasons why someone might need a guarantor loan to help secure much-needed finances, and in the majority of cases, it’s down to personal circumstances. If someone has a bad credit history, then they will struggle to get a personal loan as lenders see this as a dangerous risk. However, some lenders will offer loans to those who have a guarantor, provided that the guarantor has a good credit history themselves.
Who Can Be a Guarantor?
Becoming someone’s guarantor and accepting responsibility for paying their debt is not a decision that should be rushed. A guarantor is typically a close friend, a family member or somebody that the borrower has a strong personal relationship with. Most credit lenders require a guarantor to be a homeowner because owning a property gives an extra sense of security and means they are less likely to disappear when repayment is due to be made.
What is The Risk of Becoming a Guarantor?
Becoming a guarantor is a serious financial responsibility. And, in the event that the borrower defaults on their repayments, it may affect the guarantor’s credit file and their chances of securing credit in the future. If you do plan on obtaining credit in the near future, you need to think about the implications that becoming a guarantor could cause you.
What Is A Guarantor’s Responsibilities?
If you are thinking about becoming a guarantor, then you need to be aware of “joint liability”. This may apply to specific situations where multiple people enter into a financial agreement together. For example, if a parent decides to become a guarantor for their son or daughter that are at university and sharing accommodation with other students, they might potentially become liable for the rent of all those living in the property.
A guarantor agreement will only show up on the credit history of the guarantor if the borrower defaults on the loan. If it is paid on time and the repayments are made in full, then it will not be reflected on their credit score in any way. However, it is vital to examine the guarantor agreement’s terms and conditions to ensure you are clear about your responsibilities.
What Are the Benefits of Guarantor Loans?
Guarantor loans are designed for those struggling to obtain credit from other lenders due to having a poor credit history. As long as you can find someone who is willing to help you with a good credit rating to be your guarantor getting this type of loan is an option for many people to consider. You need to be able to afford repayments outlined when applying for the loan, but the chances of being successful are much higher.
Fast Approval Process
The process of taking out a guarantor loan is a relatively quick one, with most processed and the credit deposited in accounts roughly 24 hours after a successful application has been accepted. If you have found a guarantor that is willing to help you and are in need of unsecured credit, then this offers a great financial solution.
Longer Repayment Terms
The repayment terms generally depend on how much you credit you secure and how much you can afford to repay. They are usually very flexible, with some guarantor loans lasting up to over five years if required, as opposed to payday loans which often gain bad media amongst the UK press for having repayment terms of only 30 days.