Warning: Late repayment can cause you serious money problems
For help, go to moneyadviceservice.org.uk
Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%
This article is not intended to contain information about, or advertise, products offered by us but is intended to contain information, give opinions or discuss generally available products/services.
Author: Internal Marketing Department
For some getting loans in UK is becoming increasingly difficult with the changes in regulations that have been brought over since the FCA took over the financial industry’s regulation. This has increased the trend of guarantor loans in UK. Generally this is a loan which is given to a borrower, who is otherwise ineligible for getting a loan, against a guarantor who is liable to pay off the loan in case the borrower defaults. There are a lot of aspects to be considered when taking out a guarantor loan and they apply for both the borrower and guarantor.
The loans should still be assessed in a way which could be affordable to pay off for the borrower, but in case the borrower defaults on the payments, the guarantor has to pay off the payable amount.
Take for instance Amigo loans, which is an lender that offers guarantor loans in UK and has quite easy policies to follow through. The borrower could opt to take a loan between £500 and £5000, and the time of repayment could be chosen from 1 year to 5 years. Before taking out a loan, borrower should calculate the total interest payable and monthly interest for the loan. Consider a situation where the borrower has taken out a loan of £5000 for 5 years could pay up to £10,000 in interest over the five year span. But the same amount of loan if taken out for 2 years will generate only an amount of £2000 in interest. The monthly amount could be more for a shorter term loan but a short term loan yields more savings overall for the borrower.
Conditions for becoming a guarantor:
For becoming a guarantor, most banks will ask for the guarantor to have great credit ratings, sometimes along with a house for security. Some organizations in UK like Amigo loans will prefer a guarantor with a house, but mostly will accept the loan application even if the guarantor does not have a property to secure against the loan.
The age restrictions of becoming a guarantor for loans will be between 18 and 75 with a good credit rating. The guarantor has to submit to the bank or agency all the relevant information such as their salary, and outgoings like other credit the have already along with general monthly expenditure.
Considerations for a guarantor:
Before giving out guarantor loans, lenders check the credit history of the guarantor to see whether they have any negative markings in their credit history. This is called a quotation search through which organizations like Amigo loans decide the creditworthiness of the guarantor, but Amigo loans make sure that in future a bank or any lending organization is not able to see this quotation search on the guarantor’s profile. This ensures credit history of the guarantor does not suffer for a simple checking which is why Amigo loans and some organizations as such could be a good option for getting the loans.
People planning to act as a guarantor need to think very carefully about what they are doing. Having a significant amount of trust and belief in the borrower is important as they could end up having to repay the whole loan if the borrower defaults. Not only this, if the guarantor then cannot afford to repay the loan they could face the possibility legal action.
On top of this, the credit report of the guarantor will be affected if the borrower defaults and they do not pay. So while taking out a new loan, the guarantor will be liable for the bad credit ratings for the defaults caused by the borrower.