Guarantor loans may not be a hugely mainstream method of borrowing just yet, but in the past they were extremely popular and in some cases were the only way to borrow. A guarantor is needed by the loan company for the same reason that a letting agency may ask for one – if the loan recipient/tenant doesn’t pay, then the guarantor is asked to do so in their place. Of course, this is a rare occurrence, as many people who sign up to a payment agreement, for either a loan or a tenancy, are likely to pay what they owe. This may be due to general honesty on their part, or through fear of severely damaging their credit rating.
The good thing about being a guarantor is that guarantor loans are ‘vetted’ in a more comprehensive way than other lending options aimed at those who may be turned down by the banks. The checks are in place to protect the lender, the guarantor and the borrower, so it makes a lot of sense, even though it may take a little longer to process the application. Consumers have been spoiled somewhat by the speed in which payday loans can pay out – in some cases you can have the money in your account within 15 minutes. While this is very handy in an emergency, it doesn’t allow the lender to ensure that you’re 1: able to pay the money back and 2: necessarily able to borrow legally (i.e. you’re old enough and a UK national). A guarantor loan can still be in your account on the same day as your application, so it’s not so slow that you won’t be able to use it in an emergency situation.
If you’ve been asked to act as someone’s guarantor, you’ll need to consider whether you trust them to pay the amounts they’ve agreed to, and you’ll need to feel happy with the lender, as they will hold your personal details for the duration of the loan. It’s likely that you’ll be asked to provide evidence that you’re able to afford the loan, as well as your friend. This doesn’t mean that you’ll necessarily need to pay any money; it’s just a standard check to make sure that the lender is being responsible. If they lent the money to people who couldn’t afford to pay it back, then this would not be fair to you or them.
This is part of the reason why being a guarantor is a relatively ‘safe’ thing to do where your money is concerned. The friend that you’re ‘backing up’ will be checked by the lender and they will only accept the application if they’re happy that they can afford their loan. This is good for you, as it’s unlikely they’re going to default on the repayments if the loan is affordable to them.
It’s worth gathering together some evidence of your I.D. and your income, as you may need to produce supporting documents as part of the application process.
The good thing about being a guarantor is that guarantor loans are ‘vetted’ in a more comprehensive way than other lending options aimed at those who may be turned down by the banks. The checks are in place to protect the lender, the guarantor and the borrower, so it makes a lot of sense, even though it may take a little longer to process the application. Consumers have been spoiled somewhat by the speed in which payday loans can pay out – in some cases you can have the money in your account within 15 minutes. While this is very handy in an emergency, it doesn’t allow the lender to ensure that you’re 1: able to pay the money back and 2: necessarily able to borrow legally (i.e. you’re old enough and a UK national). A guarantor loan can still be in your account on the same day as your application, so it’s not so slow that you won’t be able to use it in an emergency situation.
If you’ve been asked to act as someone’s guarantor, you’ll need to consider whether you trust them to pay the amounts they’ve agreed to, and you’ll need to feel happy with the lender, as they will hold your personal details for the duration of the loan. It’s likely that you’ll be asked to provide evidence that you’re able to afford the loan, as well as your friend. This doesn’t mean that you’ll necessarily need to pay any money; it’s just a standard check to make sure that the lender is being responsible. If they lent the money to people who couldn’t afford to pay it back, then this would not be fair to you or them.
This is part of the reason why being a guarantor is a relatively ‘safe’ thing to do where your money is concerned. The friend that you’re ‘backing up’ will be checked by the lender and they will only accept the application if they’re happy that they can afford their loan. This is good for you, as it’s unlikely they’re going to default on the repayments if the loan is affordable to them.
It’s worth gathering together some evidence of your I.D. and your income, as you may need to produce supporting documents as part of the application process.