Guarantor Loans UK
Guarantor Loans are becoming increasingly popular in the UK. These loans can sometime be a great way for people with little, or poor, credit to have the opportunity to obtain a loan that is a safer alternative to a payday loan.
A guarantor loan is an insecure loan option, in which the borrower is required to have a guarantor co-sign the loan agreement, along with the borrower. The guarantor is someone who already has a good credit score and is able to be approved by the lender.
In the loan agreement, the guarantor agrees to be responsible for repaying the loan in the event that the initial borrower defaults. While guarantor loans are considered safer than payday loans, they still come with some risk and the interest rate is often higher than that of a standard loan. This results in the need to repay a significantly higher amount than you borrowed. It is important to understand how these loans work and the pros and cons of obtaining this type of loan before making your final decision.
How Do Guarantor Loans Work
If you have little or no credit, or you have poor credit, you are likely going to find it difficult to be approved for a standard loan at most financial institutions. The good news is that with a guarantor loan, the lender typically does not check the borrower’s credit score and if they do, it is not used against them for approval. Instead, the bank, or other financial lender, is more concerned about the guarantor’s credit score and his/her ability to repay the loan.
Once approved for the loan, both you and your guarantor will need to sign the loan agreement and both of you are assuming responsibility to repay the loan. As the borrower, you are the primary person responsible for repaying the loan. However, if you default on the loan and fail to make payment, the responsibility for payment will shift to the guarantor. You can usually borrow between £500 and £10,000 and while the interest rates are still higher than a typical loan, they are lower than what you would find with a payday loan.
There are many different advantages of obtaining a guarantor loan versus other alternative lending options.
– There is usually no credit check required for the borrower, allowing even people with bad credit to obtain this type of loan.
– Interest rates are cheaper than many other alternative loan options.
– Making regular monthly payments on time can help to improve your credit score.
On the other side, there are also several disadvantages of guarantor loans that should be considered first.
– While the interest rates are lower than those associated with a payday loan, they are still fairly high.
– You may have a difficult time finding a guarantor to agree to co-sign the loan.
– You put the guarantor at risk of damaging their credit if you fail to repay the loan in accordance with the terms.
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