At some point, everyone has financial problems or times when he or she needs cash quickly to cover an emergency home repair or to fix their vehicle when it breaks down. However, for many people, it can be difficult to get a loan because they have less than perfect credit. Fortunately, if you have someone willing to sign a loan form for you, you may be able to be approved for a guarantor loan.
What Is a Guarantor Loan?
A guarantor loan is a type of unsecured loan that allows you to borrow money as long as someone acts as a guarantor for you. The guarantor agrees to repay the loan if you cannot, or do not, make the loan repayments. Unlike other high-risk loans, such as payday loans, you will not be charged any upfront fees or arrangement fees.
The person taking out the loan has to be at least 18 years old and have an open bank account in the United Kingdom from which the loan repayments will be made. You will need to show that you have the ability to make the loan repayments and be able to pay it back in a timely manner.
How Much Can You Borrow?
Depending on which company you borrow the money from, you may be able to take out a loan from £1,000 to £12,000 if it is determined from your application that you can afford the repayments. The terms of a guarantor loan will depend on how much you borrow, but you will usually have from two to seven years to pay it back.
Unlike bank loans, you don’t have to wait several days to find out if your application has been approved. You will usually receive notification in about 24 hours about the status of your loan application. If you are approved for a loan, the money will be directly deposited into your guarantor’s bank account, so you will have instant access to the funds.
Who Can Be a Guarantor?
The guarantor for your loan should be someone that you trust, such as your mother, father, a sibling, or even a good friend, but they cannot be financially linked to you, so a spouse could not be your guarantor. A guarantor has to be at least 18 years of age, but no older than 78 by the end of your loan term. The guarantor must also be a homeowner in the UK with a bank account so the funds from the loan can be deposited into it. They must have a regular source of income.
Whoever is acting as your guarantor will undergo a credit check and an affordability assessment. The guarantor will usually have to provide the same documents they would when undergoing a normal credit check, such as bank statements, their identification, and proof of income. The financial institution with whom you are applying will have documents that the guarantor must fill out and sign before they consider approving the loan.
Does the Guarantor Have to Own Their Home?
While most guarantor loans require that the guarantor be a homeowner, there are some financial institutions that will allow non-homeowners to back your loan. However, if they do rent their home, then there may be restrictions on the amount of money you can borrow. Many institutions will allow you to borrow as much as £3,000 if the guarantor is a tenant rather than a homeowner, and you may pay a higher interest rate as well.
Ideally, you should be a homeowner as well, but if you are not, you can still take out a guarantor loan. Tenants that require a loan may be able to borrow as much as £6,000, as long as it is determined that your guarantor is able to pay back the loan if you cannot. If you need to borrow more than £6,000, you may have the option of applying for a guarantor loan with a second institution. However, you would need to find two institutions willing to split a loan for you.
How Much Interest Will You Pay?
Although the interest on a guarantor loan will be higher than a conventional loan, it will be less than the interest paid on other high-risk loans like payday loans. The rate of interest will vary between lenders and how much your interest rate is will be affected by your credit rating. However, you can expect to pay anywhere from 20 to 50 percent APR on most loans. If the guarantor is a tenant rather than a homeowner, then your interest rate could climb as high as 99 percent APR.
You should be aware that since these types of loans are not as strictly regulated as other loans, such as payday loans, there is no cap on the amount of interest you could end up paying. This could mean you will pay back much more than you originally borrowed, and it could be hard for you to repay the loan. If you are unable to make the repayments, then your guarantor will be responsible for paying back the money you borrowed.
No Restrictions on Usage
When you take out a guarantor loan, you do not have to explain why you need the money to the lending institution. When you apply for a loan through a bank or credit union, they want to know exactly why you want the money and they often have categories for the type of loan you need. For instance, if you are borrowing money to buy a vehicle, then a bank will have you take out a car loan.
There are no restrictions on a guarantor loan, so you could use the money to consolidate your debts or to pay for a replacement boiler in your home. As long as you can make the repayments, you do not have to explain why you need to take out the loan. If you need money quickly and have someone willing to help you, a guarantor loan may be the best way to get the money you need.