Taking out a guarantor loan is becoming a popular option for those who suffer with bad credit scores. Assigning a willing friend or family member as a guarantor for a loan in your own name, assures lenders that the debt will be paid off by the guarantor in the event of a default. This allows them to offer lower interest rates in return for that security.
For anyone thinking of applying for a guarantor loan, these are some important points to be aware of.
Is the Loan secured against the Guarantors Home?
The Guarantor is responsible for the loan, so any possible default can put the guarantor’s home at risk and lead to them losing their home if the loan is secured against their house.
The Guarantor is locked into the loan
A guarantor has no way out of an agreement once it is finalised. It’s not possible to pull out, without the borrower paying off the debt in full, or refinancing by taking out another loan without the guarantors name on it. When you consider that a guarantor loan can have a five year term, there is quite a lot of potential for things to go wrong.
Alternatives to Guarantor Loans
A Guarantor loan is a huge commitment for both the guarantor and the borrower. If possible, instead consider a short term loan. It’s always best to borrow as little as possible, for the shortest time. Neither will you jeopardise your friendship or family’s security if you cannot repay.