Guarantor Loans

Guarantor Loans

Are Guarantor Loans for Someone Specific?

It is worth knowing that a guarantor loan was designed to help those that have a poor credit record to be able to borrow larger sums of money. Normally loans are not available to those with a poor credit record as traditional lenders do not want to take on someone that they do not trust. However, some lenders realised that these people needed some help and created payday loans which they could use to borrow small amounts of money in emergencies. But these only provided borrowers with up to £1,000 which was often not enough for what they needed to buy. Therefore, guarantor loans came along where more money could be borrowed but the borrower needed someone to make the repayments for them if they could not do it. This enabled the money to be lent without the worry of trust between borrower or lender.

How do They Work?

So the borrower will need to nominate a guarantor. They will need to have a good credit record and be prepared to cover the cost of any loan repayments that the borrower misses. This is up to the borrower to explain and organise. Therefore, they will need to find someone that will be happy to do this for them. Often it could be that they nominate a parent or grandparent but it can be anyone that they know that will agree to do it. Once the loan is set up it will still be the borrower’s responsibility to have the loan payments go by direct debit form their account. However, if when the lender tries to take the money there is not there or not enough, they will go the guarantor to make up the missing balance. The specifics of how it works will change depending on the specific lender and their precise conditions.

Apart from this the loan works very much like a normal loan. The borrower will be given a lump sum of money to spend on whatever they wish and they will then be expected to make monthly repayments until the loan is repaid. How many payments it takes will depend on the amount that they borrow and how much the repayments are. A missed repayment will incur a charge, just like a normal loan, but with this loan the repayment will then be taken from the guarantor.

If this happens then the guarantor may expect the borrower to repay them. However, it will be up to the borrower and the guarantor to come up with a plan. The lender will not get involved in this. It might be that the guarantor will be willing to make a few payments and not have the money back, but it is important for them to discuss this with the borrower. If the guarantor does want their money back, they will need to make it clear that they will want this to happen and what they expect with regards to the timing of this. Will they expect I as soon as possible or will they be happy to wait until after the loan is repaid, when the borrower will have more money? It is important for this to be talked about first.

Guarantor Loans

How to Protect Your Guarantor

If you have a guarantor loan, then it can be a good idea to make sure that you look after your guarantor. This is because they will be important to you, they are helping you and you do not want to fall out with them over anything to do with this loan. Therefore, there are various things that you can do to help them.

Make Sure They are Aware of How Much They Could Pay

It is very wise to show them how much they may have to pay in full. Explain to them how much they would have to pay each month if you missed a repayment and how much they might have to pay if you missed all of the repayments. Obviously, you will not want to miss any payments if you can help it and you will certainly not want them to pay the whole loan off, but it is wise to let them know what they might need to do. This will allow them to think about whether they will need to budget and plan their spending so that they have this money available if they need it.

Make Sure They Understand How the Loan Works

They also need to be clear on how the loan works. They will need to know that if you miss a payment they will have to make one. They may pay more than you due to any additional charges that are added on if the initial payment is missed. They will also not necessarily be asked for their payment on the same day that the borrower is asked. Therefore, it is important for them to know that information so they can properly prepare for it. It should be in the terms and conditions, but it might be easier to ask the lender to clarify so you have all of the facts that you need.

Come to an Agreement About you Repaying Them

It is a good idea to also discuss with them what will happen if you do miss a repayment. Obviously, they will realise that they will have to make it, but what happens them? You need to discuss whether they will just make the repayment and that will be the end to it or whether they expect you to repay the money to them at some point. It can be good to go into specific detail to find out when they need the money, if they do want it to be repaid. It could be the case that they will want it as soon as possible or that they are happy to wait until you are ready. It is worth having a long discussion about it all. You need to make sure that what you agree is fair to both of you and something that you will both be able to commit to and stick to.

Keep Things in Writing

It is a good idea to write down what you agree with them with regards to repaying and each keep a copy and perhaps even sign it. This might seem a bit extreme but it could mean that things will be a lot better later on. For example, if you miss a few payments and you cannot repay them and they suddenly need some money themselves they may put pressure on you to repay them. This could make your relationship strained as you struggle to get them the money and they get cross with you. If you have an agreement written down, which states that you do not have to repay right away, then this could help you as you could remind them of that and it should take the pressure off you.