Been asked to be a guarantor? Here’s what you need to know Oct 2nd
You’ve been asked to be a guarantor on a loan by a friend, family member or colleague and you have provisionally said yes. The next step before confirming your willingness is to understand a little bit more about guarantor loans and your obligations as the person guaranteeing the repayments.
The guarantor loan market is growing rapidly at the moment and it is not showing any signs of slowing down. Most guarantor loans are borrowed for between one and five years and are generally between £1,000 and £10,000 in value. Guaranteeing the loan would potentially make you liable to make repayments up to the value borrowed. It is therefore important to know a few things before you fully agree.
What are guarantor loans?
Being a guarantor is nothing new for lending in certain industries, in fact it was a commonplace practice in the times before computer based credit rating scores. The idea of guarantor loans is the same as being a guarantor for someone applying for a mortgage or rental property – you are the fall back if the borrower was no longer able to make payments.
Guarantor loans, specifically, are reasonably recent additions to the mainstream lending industry and are often compared to payday loans. The similarity between the two surrounds the fact they are both suitable for people that have a poor credit history or have been rejected credit in the past. The difference is that payday loans are for lower amounts over a short period of time, the average stands at circa £270 borrowed for less than 34 days. In comparison, guarantor loans are of a much higher value and the repayments can last up to five years.
What are the requirements to be a guarantor?
A guarantor can be almost anyone. As long as there are no financial links between you and the borrower, for example being a spouse, then you are eligible to be a guarantor. This means that family members, friends and work colleague are all able to be considered.
There normally is a requirement for the guarantor to be aged over 21 and have a good credit rating – after all they are supporting a credit application for someone that may not have the best credit score. Whilst there is not a full credit check carried out on the guarantor the lender will look at your credit history to ensure you do not have any past issues with repaying debts. No record of being a guarantor is left on credit ratings meaning that guaranteeing someone’s loan does not affect credit scores.
What are the risks?
By becoming a guarantor you enter a legal agreement between yourself and the lending company. You therefore are legally liable for any missed payments or defaults on the loan by the borrower, that means that if the borrower were not to make any payments you would be liable for the total amount borrowed plus the interest – which generally starts at 39.9% to 49.9% APR. If you cannot make the repayments the lending company could, at last resort, look at other means of recovering the monies they lent.
It is highly important that you only consider being a guarantor for someone that you know well and trust. You do not want to put friendships on the line as well as finances, so be sure that you trust the borrower 100%.
You need to be confident that the loan is the correct decision for the borrower and be comfortable that you are in a secure enough position to help them with their application. Whilst you do not want to have to pay any defaults or missed payments, you should have it in the back of your mind that you are liable for them. Go through with the borrower all the obligations you have, all their obligations and ensure that you talk it through thoroughly before agreeing to proceed.
Remember that these types of loan may be used to help build a credit rating for someone by showing they are responsible and able to make repayments. This can open the door to more traditional lenders in the future and credits such as a mortgage. Be comfortable with your decision, whatever that may be, that is the key when deciding whether to be a guarantor or not.
Article provided by Solution Loans; a technology-led finance company specialising in providing expert advice to help you to find the most suitable type of credit for you.
Oct 2nd
You’ve been asked to be a guarantor on a loan by a friend, family member or colleague and you have provisionally said yes. The next step before confirming your willingness is to understand a little bit more about guarantor loans and your obligations as the person guaranteeing the repayments.
The guarantor loan market is growing rapidly at the moment and it is not showing any signs of slowing down. Most guarantor loans are borrowed for between one and five years and are generally between £1,000 and £10,000 in value. Guaranteeing the loan would potentially make you liable to make repayments up to the value borrowed. It is therefore important to know a few things before you fully agree.
What are guarantor loans?
Being a guarantor is nothing new for lending in certain industries, in fact it was a commonplace practice in the times before computer based credit rating scores. The idea of guarantor loans is the same as being a guarantor for someone applying for a mortgage or rental property – you are the fall back if the borrower was no longer able to make payments.
Guarantor loans, specifically, are reasonably recent additions to the mainstream lending industry and are often compared to payday loans. The similarity between the two surrounds the fact they are both suitable for people that have a poor credit history or have been rejected credit in the past. The difference is that payday loans are for lower amounts over a short period of time, the average stands at circa £270 borrowed for less than 34 days. In comparison, guarantor loans are of a much higher value and the repayments can last up to five years.
What are the requirements to be a guarantor?
A guarantor can be almost anyone. As long as there are no financial links between you and the borrower, for example being a spouse, then you are eligible to be a guarantor. This means that family members, friends and work colleague are all able to be considered.
There normally is a requirement for the guarantor to be aged over 21 and have a good credit rating – after all they are supporting a credit application for someone that may not have the best credit score. Whilst there is not a full credit check carried out on the guarantor the lender will look at your credit history to ensure you do not have any past issues with repaying debts. No record of being a guarantor is left on credit ratings meaning that guaranteeing someone’s loan does not affect credit scores.
What are the risks?
By becoming a guarantor you enter a legal agreement between yourself and the lending company. You therefore are legally liable for any missed payments or defaults on the loan by the borrower, that means that if the borrower were not to make any payments you would be liable for the total amount borrowed plus the interest – which generally starts at 39.9% to 49.9% APR. If you cannot make the repayments the lending company could, at last resort, look at other means of recovering the monies they lent.
It is highly important that you only consider being a guarantor for someone that you know well and trust. You do not want to put friendships on the line as well as finances, so be sure that you trust the borrower 100%.
You need to be confident that the loan is the correct decision for the borrower and be comfortable that you are in a secure enough position to help them with their application. Whilst you do not want to have to pay any defaults or missed payments, you should have it in the back of your mind that you are liable for them. Go through with the borrower all the obligations you have, all their obligations and ensure that you talk it through thoroughly before agreeing to proceed.
Remember that these types of loan may be used to help build a credit rating for someone by showing they are responsible and able to make repayments. This can open the door to more traditional lenders in the future and credits such as a mortgage. Be comfortable with your decision, whatever that may be, that is the key when deciding whether to be a guarantor or not.
Article provided by Solution Loans; a technology-led finance company specialising in providing expert advice to help you to find the most suitable type of credit for you.