Different types of unsecured loans include peer-to-peer lending, wedding loans, emergency loans, payday loans, home improvement loans, and guarantor loans. All these loans share a common characteristic – high interest rate. In these loans, the borrower does not provide any collateral, which may be repossessed if the borrower fails to repay the loan amount. Among all loans, guarantor loans have been found to have lowest complaint and fraud ratio, whereas payday loans have the highest ratio of fraud and complaint.
This is why, the Financial Conduct Authority has introduced new stricter rules for payday loans. However, considering the flexible nature of guarantor loans, the Financial Conduct Authority provides technical assistance and consultation regarding guarantor subsidiaries and assets.
Are you considering taking out a guarantor loan? This guide may help you!
Understand the Concept of a Guarantor Loan and Credit Report
Guarantor loans are often confused due to their complex association with the credit reports of borrower and guarantor:
- A guarantor loan does not affect the credit report of a guarantor, unless the borrower fails to repay the loan amount.
- The lender considers the credit report of the borrower, and not of the guarantor to calculate the loan interest.
- The loan does not show up on the credit report of guarantor. However, if the borrower fails to repay the loan amount, only then the loan will show up as defaulter on the credit report of borrower as well as of guarantor.
The Safety of Guarantor
Anyone, who is 21+ of age, can become your guarantor. Many times, the parents become the guarantors, which is legally acceptable. The guarantor loan does not provide any kind of safety to the guarantor, except that they may consult the Financial Conduct Authority for guidance regarding the guarantor assets and subsidiaries.
The lender may chase the guarantor if the borrower fails to make the repayments. The lender may also take the borrower and guarantor to the court in extremities.
How to get the Best Guarantor Loans
Considering the aforementioned information, following are the important tips to get best guarantor loans in UK:
- Evaluate your financial condition and make sure that you can repay the loan amount.
- Consider the reason of borrowing a guarantor loan. The guarantor loans should not be borrowed for entertainment, home renovation, vacation, and such kinds of other reasons.
- Choose a trustworthy guarantor, who is willing to repay the loan amount if you fail to make the repayments.
- Most often, the guarantor loans come with high interest rate. Research the market and select a lender with lowest interest rates. Keep your cool as the research process may take weeks.
- Negotiate with the lender. Your credit report is the best tool to negotiate, especially if you have improved your credit score in last six months.
Make sure to understand the consequences if you fail to repay the loan amount. Some lenders have stricter policies for loan repayments. Discuss the policies before signing the contract, or a wrong decision may put your credit report, as well as your guarantor’s, at stake.