Guarantor loans are a reasonably new type of loan, but they are quite different to many others. It is good to find out about how they work and how you apply before deciding whether this type of loan is suitable for you.
What is a guarantor loan?
A guarantor loan is a short-term loan which allows you to borrow larger sums of money than other short-term loans and repay them over a longer period of time. Many short-term loans have to be repaid in weeks or months and you can only borrow small sums of money. A guarantor loan will allow you to borrow more money and there is a big difference in that you need a guarantor. This lowers the risk for the lender and this is why they are prepared to lend more money in this situation than other short term lenders who tend to lend only small amounts. This is someone that has a good credit record that will be prepared to cover the cost of any repayments that you miss because you cannot afford them. This will obviously need to be someone that is close to you as not everyone that you know will be prepared to do this for you.
How to choose a guarantor
Choosing a guarantor can be a really big decision as it could have a big impact. Firstly, you will need to choose someone that has a good credit record. You may know quite a few people that fit this description or you may not know many. Either way, this is just the first step. From those people, you will need to choose someone that you feel will be willing to help you out. There will be some people that would be more than willing to help but there will be some that will not and of course, in both categories there will be some that you are not sure about.
Once you have done that easy bit you need to think about your relationship with those individuals. It is important to think about what impact it might have on your relationship with them if you do ask them to be your guarantor. You will have to explain to them that you have a bad credit record and need help with borrowing money. They might want to know why and what has happened and may judge you on that. They may feel sorry for you and want to help or they may feel you have been reckless and think that you should not have got into that situation in the first place. Do you will need to think carefully as those that judge may feel they do not have the same respect for you afterwards.
Even if you find someone that will look kindly on you things could still change between you. If there is an issue with you repaying and they end up repaying a lot for you then they may not be happy. They may expect you to repay the money quickly and if you cannot do that, they may not be happy with you. They might also need the money and then you would feel guilty for asking them for the money. They might even get annoyed with you for that as they may assume that you will be able to make all the repayments.
You might even find that other family members or friends get jealous that they have chosen to help you, particularly if they then need money and cannot get the help from your guarantor as they are already helping you. This will be more of a problem if there is a lot of jealousy in the family or between friends. This can cause lots of problems and even a break down in relationships so you will need to think about whether this is something you are prepared to risk.
How to apply
The application will be really straightforward compared to the decision making that comes before it with regards to choosing who to be your guarantor. You will need to have the details of yourself and your guarantor and they will need to sign documents as well as you. Applications will be simple and they will often be online. You will need to enter basic details so that they can identify you and check out your address and credit rating and it is likely that you will both have to provide ID as well to prove who you are. Then you should be able to very easily apply for the loan. Obviously, the lender will need to decide whether they are happy to lend to you but it is likely that they will be happy as long as they approve of your guarantor and are confident that they will be able to make repayments if you are unable to.Read More