Most people are familiar with the two basic categories that most loan types fall into: secured and unsecured. The only difference between secured and unsecured loans is the fact that the former requires you to use an asset to secure the credit, while the latter is not tied to any asset. An unsecured loan helps people in need of an immediate financial assistance, without requiring them to risk their homes or any other property.
Guarantor loans are the most recent additions to the unsecured loan market. This new way of borrowing is available to people with poor credit that need to meet urgent financial needs. What you should do is take out a guarantor loan. You can obtain significant amounts of money and the best thing is that you can pay off the credit if your financial situation improves. Here is what you need to know about this type of finance.
Definition of “guarantor loan”
A guarantor loan is a type of unsecured credit that requires a second party to guarantee the repayment of the amount borrowed by the primary applicant at any time. The guarantor takes up the responsibility of paying the accrued debt in case the original borrower defaults on the loan obligation. Credit products of this type are generally used for lifestyle purposes, like home improvements, new businesses, cars, and weddings. They last between 1 and 7 years.
Borrower and guarantor criteria
To get approved for this type of finance, you must have reached the age of majority and not be in a case of active bankruptcy. It is also necessary to have an active bank account. You will use this to make the required loan payment instalments.
The guarantor should a person you know and, most importantly, trust. The person that endorses the third party agreement has to have an established and positive credit score, with almost no history of bad debt. The co-signor needs to have an active bank account as well. In some instances, it is necessary to put up an asset as collateral.
Guarantor loans: UK regulations
Despite the fact that guarantor loans make approval more likely, they are not scams. When it comes to guarantor loans, UK regulations are very strict. Legitimate consumer credit firms are required to work under the restrictions and rules of the Financial Conduct Authority. Therefore, if you do not meet the eligibility criteria, your application will not be approved. You do not have to worry that you will fall into arrears or be taken to court.
Do you need a guarantor loan?
If you have poor credit history of if you have no credit history whatsoever, this type of finance is for you. In fact, guarantor loans are available to people in all kinds of situations who have difficulties in getting money. The unsecured credit is accessible as long as you get a co-signor with a positive credit score. A guarantor loan allows you to borrow a higher amount than you would be able to with good credit. You can improve and even rebuilt your credit rating, so do not miss this opportunity.
How much you can borrow
You can borrow between £1,000 and £15,000. It is important to stress that there are no upfront costs. The credit will be paid via direct debit. No fee is charged for the bank transfer. The contract details the amount of monthly payments and you have the freedom to set a date each moth for the collection of the payment.