As banks tighten up on lending, guarantor loans have evolved to fill a gap in the lending market. Especially beneficial for those with a bad credit score, guarantor lending enables those with a poor credit history to take out a short term loan. The security offered by having a third party guarantee a loan, takes the risk out of lending should the borrower default on their re-payments. This means the borrower can benefit from more favourable terms, such as a lower APR or longer re-payment period.
A guarantor loan is an unsecured loan, and so the borrower need not be a homeowner. Most suited to those without assets, a guarantor loan offers an opportunity for those who would normally find it difficult to borrow. As students, tenants, and people without a regular income have been finding it ever hard to access loans, so the guarantor loan has become an increasingly popular option for those needing short term credit.
So who can you ask to be a guarantor? Responsible lending by loan companies typically requires a guarantor to have a regular income, with disposable income and a positive credit history. This is most likely to be a close friend or family member, who is willing and able to take over repayments if necessary. As long as they are aware of their legal obligations to repay the loan should you default, they need do nothing else to guarantee the loan. And once you get your cash, you can always buy them a drink to thank them!