Guarantor loan or bad credit payday loan is becoming increasingly popular in UK. By definition, the guarantor is a person who offers guarantee or takes financial responsibility of the borrower. Guarantors are required mostly when people need short-term loans with bad credit history. The term ‘financial responsibility’ in guarantor loans creates confusions, which are often misinterpreted by the borrowers and guarantors. The following Frequently Asked Questions on Guarantor Loans will help you evaluate the status and responsibilities of a guarantor in bad credit loans that need a guarantor.
Why Do You Need a Guarantor?
Almost all types of loans require good credit score for approval. The approved amount depends on the borrower’s credit score. The credit score is essentially required as a financial security to the lenders. People with bad credit scores cannot offer this security, which is why they require a guarantor to offer security.
Does Your Guarantor Pay Your Loan?
Very rarely! Becoming a guarantor is not easy. However, guarantor payday loans are quite flexible as compared to other types of loans. In other loans, the lender may approach the guarantor for repayment if the borrower fails to make the repayments. In payday guarantor loans, the borrower may request and negotiate with the lender to extend the deadline of repayment. Payday loans are small amount loans, therefore, a guarantor is most often not approached for the repayment.
Is Your Home at Risk?
No. Guarantor loans are unsecured loans and do not put any of your other assets on stake.
Can Your Partner Become Your Guarantor?
Some guarantor loan providers accept partners as guarantors. However, most of the guarantor loan providers do not accept those people as guarantors who depend on your financially.
Will Your Guarantor Receive the Loan Money?
Guarantor loans work in two ways. The direct loan lenders send the money directly into the borrower’s account and the indirect lenders send money into the guarantor’s account. Most often, the guarantors work as third parties in payday loans.
Who Can Become a Guarantor?
Any person, who is 18+ years of age, understands your bad credit circumstances, and is able to repay the loan if you are unable to repay it, can become a guarantor. For some lenders, only financially independent homeowners can become a guarantor. For some lenders, financially independent people who may or may not be the homeowners can become the guarantors. For some lenders, even financially dependent people can also become guarantors.
Does Guarantor Loan Improve Your Credit Score?
Yes. Like all other loans, your credit score increases if you repay your guarantor loans on time.
Does Guarantor becomes Responsible for Your Other Loans Too?
Guarantor loans work as individual loans. A person, who becomes your guarantor in a guarantor loan, is not at all responsible for your other loans.
Can the Repayment of Guarantor Loans Increase?
Some lenders have fixed repayment plan while others have variable repayment plan. The guarantor loan increases in variable repayment plan if you do not make the repayments.
It is ideal to repay your guarantor loans on due date to avoid any legal dispute.