Although the annual percentage rates of guarantor loans are still relatively high (usually just under 50%) compared to the mainstream credit providers, they still represent a huge drop in the amount that you would usually have to pay for credit if you have a poor credit history. The reason why the guarantor lenders are able to offer these amounts at these rates is down to the main factor of guarantor loans; the guarantor!
Your guarantor is a support for your application; in other words, they help you to get the credit by agreeing to pay for any repayments that you’re unable to meet. For this reason, your guarantor should be completely happy that you’re able to cope with the loan that you’ve taken out, and that you've obtained credit for all the right reasons.
One thing that guarantor lenders may do as part of the application process is to ask to see your latest bank statements and/or to go through an income and expenditure check with you. This is usually because the lender has a responsibility to themselves, your guarantor and you, so it’s important that they’re satisfied that you can afford to cope with the loan repayments. If they lent the money without first checking this, then many people who couldn’t really afford to take on credit like this would fall victim to payment defaults, which would cause a lot of stress and mean that the guarantor would have to pick up the tab. They’d have no choice in the matter if they had signed the credit agreement, as this is a legally binding document. Failure to pay on their part could mean further action taken against them, meaning that they’d be effectively punished for supporting a loan that wasn’t even for them.
It’s for this reason that it’s very important for both the guarantor and the borrower to be happy that they’re able to pay the monthly instalments. The guarantor will not have to hand over a penny if the borrower is able to make all payments in full and on time, and this is the way it is in the majority of cases that guarantor lenders deal with. Their fair practices of checking the ID and income of both borrower and guarantor protects all concerned. The borrower therefore can get a loan which is not only affordable, but is a higher amount than other lenders would be willing to give. The guarantor gets to lend a hand without actually having to part with any money (all being well), and the lender has fewer losses due to missed payments.