A concise guide to guarantor loans
When it comes to loans, there are many different options and each offers their own potential upsides and downsides.
One key advantage of a guarantor loan is the added protection that it offers to a would-be loanee, but there are also other benefits that can result from having a guarantor in your corner. These benefits, as well as a step-by-step guide to applying for a guarantor loan in the UK, are discussed below.
What makes a ‘guarantor’ loan different?
A guarantor-based loan is unlike any other loan, for one specific reason, there is a second loanee in essence.
The guarantor becomes responsible for the loan should the principal loanee be unable to pay, this offers protection for the loanee and all importantly their credit rating.
A guarantor loan can also allow for a larger initial loan amount to be agreed upon than the principal loanee would otherwise be able to request.
The downside is, that should the guarantor also not be able to meet the repayment terms, they are liable for whatever penalties the main loanee incurs, so it is of key importance that the guarantor themselves is absolutely certain that the agreed terms are well within their capability to cover.
Applying for a UK-based guarantor loan:
To apply for a guarantor loan, many of the requirements are the same as any other loan, with a few key differences, below is a step-by-step guide.
Required documentation:
Before starting the application process, you will need a minimum of.
- Proof of income
- I.D
- Proof of address
- Bank details
A further requirement is also needed in the case of a business loan because the credit company will request details of how the loan will be utilised.
Selecting a guarantor:
The guarantor is legally responsible for the loan should the loanee be unable to make payment, so it is of utmost importance that there is mutual trust and full disclosure between both parties.
For the loanee it is important to choose a guarantor with a stable income and dependable employment, as well as a good credit history, these three criteria are the key guidelines that lending companies will look at when making a decision.
Selecting the right loan:
Another key decision point is the loan amount and terms. It is important to research properly and choose the right lender and terms for the loan amount and repayment period that best suits the circumstances.
Considering factors such as comparative interest rates, lender's reputations and ratings, loan amounts offered, and eligibility requirements, are all key to making the absolute best decision for both the loanee and their guarantor.
Completing an application:
Loan applications are usually made either in branch, online, or over the phone.
The lender will require personal information about the loanee and the guarantor so please have all the documents at hand as mentioned above.
Also required will be the reason for the loan, and how it will be applied.
It is essential for both parties to fully understand the lender's terms and conditions before signing on the dotted line, so please be sure to read all documentation in full.
The approval phase
After all documentation has been submitted, the would-be lender will then review both the application details and perform credit checks, this process often takes several days and can even stretch into weeks in more complicated cases.
Once approved, the lender will then issue the outlined breakdown of the agreement, including the repayment terms and interest rates applied.
After this step, the loan amount will be issued.
To recap
A guarantor loan can be an ideal way to kick start a recovery to someone’s credit rating and provide what are often essential funds that otherwise a loanee would not be able to get in any other way.
That said, it is of extreme importance that the guarantor is made fully aware of their responsibilities and the potential pitfalls of such a loan and the specific type of guarantor loan that they are agreeing to.
Where possible we would urge the guarantor to be a part of every decision within the loan application process so that there are no surprises along the way.
