There are a range of perspectives as to why guarantor loans have gained in popularity. Some may say that it is down to a weakening economy, a time of recession, and the need for banks to compete for borrower confidence.
The needs driving the guarantor loans trend are basically two-fold:
- Lenders are required to deliver responsible long and short term lending practices, including loan products and services.
- Borrowers need to have the means to improve their credit worthiness for borrowing opportunities.
Responsible lending practices
By law, lenders are required to act responsibly in advertising loan products, offering long or short term loan quotations, and throughout the application and borrowing process. Credit worthiness checks through credit reference agencies to ensure that potential borrowers are able to afford loan repayments, is a requirement.
Similarly, lenders are legally bound to have to provide borrowers with transparent APR for all loans, clear information about loan terms and conditions, and all loan costs. Lenders are expected to take due care where borrowers, or potential borrowers, have mental health conditions that may impact their debt.
Part of responsible lending practice is providing options in loan products to meet the diverse needs of borrowers. Having loan product and cash advance alternatives not only improves industry competition and innovation, but allows the right product to be matched to the loan needs of the borrower.
Guarantor loans are secured short term loans and are an example of how lenders can provide responsible alternatives to individuals with weak credit history, who may be disadvantaged from taking out multiple emergency loans or rolling bridge loans.
Improving credit worthiness
Guarantor loans require an eligible credit worthy individual to stand as guarantor for the short term loan. These individuals stand as security in the event that the borrower defaults on loan repayments. Individuals with weak credit histories, such as a young student, may benefit greatly when a parent or relative serves to guarantee their short term loan.
Guarantor loans enable individuals to obtain suitable cash advances with favourable duration, interest rates and repayment terms. This type of credit offers such people a chance to improve their circumstances and financial status or credit worthiness, while gradually repaying the short term loan.
The opportunities that guarantor loans may be used for include education, business development, or purchasing a car. This use of secured credit enables individuals to develop themselves and their future earnings potential, while lowering financial strain. Some people use guarantor loans to consolidate their financial circumstances and gradually make repayments at an affordable pace.
Finding a short term loan guarantor
Being a guarantor for a secured short term loan is a means of helping someone to improve their circumstances without having to give them money. Family members may lend a hand, or friends may step in to vouchsafe the loan. Employers or others in the community may offer such support. Seeking a trusted person to agree to be a guarantor, and gaining professional guidance, will help potential borrowers to understand their credit responsibilities for successful, secured borrowing.