A few things to know about guarantor loans

Guarantor loans - what are they are, why they can work, and when they can work.

08:05 26 November 2013

To start off with, guarantor loans should not be your first choice if you are eligible for personal finance from a bank or finance company. Guarantor loans have a higher interest rate because these are high-risk borrowers who cannot get a loan anywhere else. You must also have someone who can guarantee repayment on the loan in order to get any kind of credit.

 

Let us say you cannot acquire a loan from a bank for some reason. Money is an issue and you’re strapped for cash. Maybe you have some cash but you have bills to pay. Paying off a monthly repayment for a loan is not ideal but it is better to have money to work with if it will get you moving forward than to have none. Is there an option? Yes, there is. This is where guarantor loans come into play. 

 

Lenders do not consider your credit record. They do not require proof of employment. What they do need is a guarantor, someone willing and able to ensure payment of the loan, as stated above.

 

Finding another person to be your guarantor could seem a bit awkward, but it has 3 major advantages over payday loans. 

 

• First of all the interest rate, though higher than a bank loan, is lower than a payday loan which can be as much 1737% APR.

 

• Payday loans require that the applicant be working.

 

• Payday loans offer a limited sum of money, usually no more than £1000. Guarantor loans are not limited, and the money is transferred to the applicant’s account within 48 hours of completion of the agreement.

 

As with any financial decision, take time to think carefully over the pros and cons of applying for a guarantor loan. Make sure that both you and your guarantor know exactly what your agreement is before you commit to it to avoid personal as well as financial damage.