Guarantor loans provide for a good vehicle in order to borrow, particularly during times of recession. Let’s look at the intricacies of guarantor loans now.
During economic hardship, banks and various other financial institutions become more concerned that their borrowers have the capability to repay loans. Should an individual have a poor credit history, the guarantor loan is one of the best ways for a borrower who has a poor credit rating to secure funding. Further, that funding is often provided on favourable terms to the borrower.
There are of course other possibilities. An unsecured bad credit loan will often be offered to an individual with a poor credit rating. However, interest rates and various other fixed charges tend to be very high. The amount that may be borrowed is generally low, and repayment terms have to be fulfilled quickly. Examples of the unsecured credit loan are payday loans or logbook loans.
Generally speaking, banks offer simple terms to a potential borrower. Nevertheless, banks will also require a form of guarantee that the repayments can be made. The guarantor loan is the ideal option for those who have previously suffered a poor credit history. What’s more, if repayments are made on time, it’s a good way to improve a patchy credit history.
These loans involve a third party. The third party must have a good credit history. Often, that individual will own their own home, have a monthly income over £800, and are of the age between 23 and 70 years. In this case, a typical loan offer would amount to £5000.
Nevertheless, the final decision on the loan offer will depend on a variety of risk factors. Should the guarantor have taken out a loan recently or indeed mortgaged their property, the lending institution will consider this too.
The guarantor’s role in the whole process is simple and painless. Normally, they will have no contact with the creditor providing the loan applicant pays back the loan in full and within the appropriate time frame. Nevertheless, should the applicant fail to meet these conditions, the guarantor then becomes liable to repay the loan, including any interest, and additional charges to boot.
Unlike unsecured loans, whereby the applicant is entirely liable for charges that pertain to the loan, in the case of the guarantor loan, the guarantor is liable for full repayment.
These days, many banks are refocusing on providing other types of loan. Banks are now lending to companies who act as the “middle-man. Thus, it’s now the responsibility of the borrowing company to lend to an loan applicant, and to regain full payment in turn once the loan period is finalized.
Unsecured loans such as payday loans are restricted in terms of the amount offered to the applicant. Further, repayment terms are generally restricted to a short period of time. Interest rates are extremely high, and other charges soon mount up. Defaulting or delaying repayment will mean hefty charges being levied on the account.
Thus, the borrower is at risk of repaying far more than they originally borrowed. This type of loan is only appropriate as a short term stop gap arrangement where positive cash flow is available in order to meet the financial commitment.
Guarantor loans are indeed suitable to many. Nevertheless, before pursuing this as a way of financing day-to-day life, the potential applicant should consider other options besides.