Accessing low-rate loans from your bank isn’t easy, especially if you have some adverse credit on your file or if you’re a first-time borrower.
This is where subprime loan products like guarantor loans can help. Guarantor loans are a type of unsecured loan backed up by a third party, known as a guarantor.
The guarantor is responsible for making any payments that the borrower misses.
You may be familiar with the term guarantor, as it’s widely used by landlords and estate agents in tenancy agreements.
Despite this, the topic of guarantor loans still produces a lot of questions amongst prospective borrowers and guarantors. In this post, we’re going to answer all of these questions.
How much can I borrow?
This will vary from one lender to another. However, typically, you’ll be able to borrow between £1,000 and £15,000 over 1 – 5 years.
Who can be a guarantor?
Anyone can stand as a guarantor on your loan application, providing they are over the age of 21, have a good credit history and can afford the monthly loan repayments.
Borrowers typically choose parents, relatives, or close friends to stand as a guarantor on their application. Some lenders may accept spouses, depending on whether they are financially linked.
Choosing someone you feel comfortable discussing your personal finances with is essential.
What are the risks?
As with any financial service, there are risks associated with taking out a guarantor loan.
- Lenders may report missed payments or defaults to credit reference agencies for both the borrower and guarantor, which can impact your ability to access credit moving forward.
- Lenders may take legal action to reclaim any unpaid balance on the account.
It’s also important to understand that the loan may damage the relationship between the borrower and guarantor if anything goes wrong. This can be easily avoided if all payments are made in full and on time.
What should I consider before applying?
There are several important factors to consider before taking out a loan.
Firstly, you need to work out how much you need to borrow. As simple as it seems, it can save you a lot of money in the long run. Borrowing more than you need means repaying more than you need to, and it may also mean that you’re strapped with the finance for longer than you need to be. If you’re purchasing a new car, do plenty of research on sites like Autotrader and Parkers to understand the value of your desired vehicle. Collect quotes from local installers and suppliers if you’re making home improvements.
Next, you need to calculate how much you can afford to repay each month. Do this by calculating your current income vs expenses; you can do this with pen and paper or use an online budgeting tool.
Once you’ve calculated how much you can afford to repay, visit a reputable guarantor loans provider’s website and experiment with their repayment calculator. Input your required loan amount and use their slider to adjust the term according to your repayment affordability. By picking a longer loan term, you’ll reduce the monthly repayment amount, but you’ll pay less interest and a lower total repayment amount by selecting a shorter loan term.
We hope this helps to answer your guarantor loans questions.