What are the differences between guarantor loans and no guarantor loans?
A guarantor loan aims to reduce the risk of a borrower not being able to repay the loan. This is done by having a third party who will make the repayments if the person who took it out is unable to.
Sometimes, a guarantor loan is referred to as a ‘secured loan’. Other types of secured loans include those guaranteed against property or another type of asset, but these are usually only for those seeking to borrow large amounts of money.
A no guarantor loan is only taken out in the borrower’s name without someone else agreeing to make repayments if the applicant cannot. No guarantor loans do not require the borrower to have another person sign agreement paperwork to say they will make the repayments if the individual taking it out is unable or unwilling to.
No guarantor loans are available to be repaid in one instalment or spread over several. Often, no guarantor loans take the form of a payday loan. A payday loan is a product designed for borrowing a relatively small amount of money to be repaid on the date the person next receives their wage or another form of income, such as a benefit or pension payment.
Will having a guarantor help me get a loan?
Having a guarantor can improve your chances of qualifying for certain loan products. It can also mean you could borrow a higher amount than if you didn’t have a guarantor. A guarantor loan could also have a lower interest rate as the lender perceives there will be less risk of not being repaid in full or on time.
Working with our panel of responsible lenders, we always suggest that you consider whether the one(s) you are considering is right for you before applying for any type of loan. This includes thinking about your circumstances and your ability to make the repayments alongside your other responsibilities and financial commitments.
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Who could be a guarantor on a loan?
Often, the guarantor on a loan is a friend or family member. Sometimes it could be a colleague or someone else known to the applicant. If the borrower does not repay a loan, the guarantor is contractually obliged to do so instead. If the guarantor does not make repayments, then the lender can take action against them.
If the guarantor is unable to repay the loan, then the lender should work with them to find a solution. If the guarantor refuses to pay loan instalments, then further steps are likely to be taken, including legal action. Acting as a guarantor, and asking someone to do so, should be carefully considered. It can lead to problems between the guarantor and the borrower if something goes wrong. A no guarantor loan is often more straightforward and a better choice for many people.