Guarantor Loans - What You Need to Know

Tough economic times may leave you in a state of financial woe, but that doesn't mean your situation is hopeless. Even if you have bad credit history, that's not going to be a problem with guarantor loans. Before applying for one, however, understanding of the nature of the loan is very important.

What is a Guarantor Loan?

As the name suggests, a guarantor loan is an unsecured loan that require a guarantor to be approved. Amount lent may range from 500 to as much as 10,000 payable within 12 to 60 months.

Compared with other types of loans like payday loans, a guarantor loan is a much cheaper option mainly because the interests are lower and there are no upfront fees involved.

Take for instance a loan amount of 500 payable in 12 months. If it is a guarantor type, the typical variable APR is about 49.9%. That means a monthly a repayment of 51.53. If it is a payday loan, APR can amount to 100% or more.

What to Use the Loan For?

While you can use the loan in a hundred of ways, the most common purposes typically include:

  • home renovation or repair
  • bills payment
  • car downpayment or repair
  • medical emergencies
  • travel
  • business expense
  • for special occasions
  • debt consolidation

In addition to the list, the other more beneficial purpose for getting a loan is to improve you credit rating. If you are able to make repayments on time each month, your lender will be more than willing to share your performance with credit agencies. That way, your once bad credit history may be revived seeing that you are now a responsible borrower.

What are the Requirements?

One of the best things about guarantor loans is the ease of getting one. The application process is straightforward with only a handful of requirements needed. As the borrower, you can either be a tenant or a homeowner and you must be of legal age. You don't have to be in full time employment to be qualified and there are also no hassles of credit checks to deal with.

As for your guarantor, however, you need someone who is a homeowner. It can be anyone of your family members, friends or colleagues except for your spouse. The key is to find one who can back up your credibility to make repayments on time.

What if Repayments are not made?

In case you default on your loan or fail to make payments, your guarantor will need to pay for it instead. Lenders will keep pursuing both the borrower and guarantor until payments are made including interests. In some instances, the situation may lead to legal action on the part of the lender.

While a guarantor loan is an ideal solution for people with bad credits, there are liabilities that go with it as well. As a borrower, it is very important to assume the responsibilities to avoid the possible consequences. All you have to do is make the payments on time and you won't have any problems along the way.