Our Guarantor Loans

How to Get a Loan With a Guarantor
Guarantor loans are a relatively new form of unsecured loans that have a lot of great benefits for the right borrower.
The idea is that you will have a co-signatory on your loan agreement, which will normally be a parent, a friend or a partner. This person then agrees to pay off your loan if you should default on your repayments and that way, you will find that you’re able to get a better rate on your loan and reduce the potential risks associated with taking out any loan.
How it Works
When trying to get a loan, it’s important to demonstrate to lenders that you will be able to pay off the amount you are asking to borrow, along with any additional fees and the interest that you incur. This is how lenders make their money and if you fail to make your repayments on time, then they will lose money.
The only way a lender can assess a potential borrower on this basis is to look at their credit history. This is a record of previous loans and other financial commitments that demonstrates how efficient the borrower has been in repaying loans and making their commitments in the past. If you are young and have no credit history, then you might struggle to find a willing lender. Likewise, if you have had financial difficulty in the past, then you might also have difficulty getting a loan.
By using a guarantor, you can give the bank or lender the assurance that the repayments will be made on time by at least one of you. In theory though, this will make no difference to you or the guarantor, as long as you do manage to uphold your side of the agreement. The ultimate benefit of all this is that you can find more companies willing to give you a loan and much better rates.
This is similar to a secured loan – which is a loan that uses collateral in the form of an asset (such as a property). However, it is not technically considered a secure loan and hence it is known as a ‘guarantor loan’.
An Example
To demonstrate how a guarantor loan works in practice, imagine that you are a young self-employed person who has never had a credit card, trying to buy your first property.
You might do this by applying for a mortgage at your local bank but it will be an uphill struggle seeing as you have never proven your ability to pay off loans in the past (because you haven’t used a credit card) and because you’re self-employed meaning that your income isn’t guaranteed.
This is a real problem that many young people face and it means that you might end up having to put down a huge deposit and face unfavourable terms on your loan.
This is where a guarantor comes in. Should you have a parent with a stable income, they can then sign the agreement as well as a guarantor and that will then mean they have agreed to make the repayments whenever you miss them.
This means the bank doesn’t have to worry about your unstable income and they will be more likely to be willing to offer you the mortgage!
Guarantor loans come in many shapes and sizes however and you might find that you choose to take out a smaller loan this way instead. It’s worth noting too that not all financial products offer this option. If you want a guarantor mortgage for example, then you will need to search for guarantor mortgages specifically and can’t assume that all mortgages will let you add a guarantor.
Tips
As with any type of loan, it’s still important to shop around and to look for the best deal.
What’s also highly important is that you don’t see this as an excuse to take out loans you can’t afford. These loans are for cases where you genuinely know you can make the repayments but you don’t look that way on paper to a bank or lender. The idea is that it will be easier for you to get your parents or a close friend to believe you than it will to convince your bank manager!
Either way, this is one more option for those who are looking for a loan and struggling to find a bank or lender that is willing to work with them. Weigh this up against low credit loans and secured loans to find the best option for you!