While some short-term, flexible lending options have been criticised in recent times, guarantor loans have positively thrived. These arrangements offer the ideal balance between short and long-term loans, as they can are underpinned by favourable interest rates and can be repaid over a maximum of five years. This type of loan is also unique, however, primarily because it requires collateral in the form of a guarantor who will assume responsibility for all repayments if the borrower defaults on their agreement.
3 Things you should be aware of as a Guarantor
This is a considerable commitment, meaning that anyone who has been approached to be a guarantor must consider their options carefully before making a commitment. Here are three things you should be aware of: –
You must be prepared to settle missed Payments
As a guarantor, you automatically assume responsibility for any payments that are missed by the original borrower. This means that you may be contacted and asked to make a repayment, which could place additional pressure on your own financial circumstances. It is therefore important that you are willing to make such a commitment and adhere to these terms before agreeing to become a guarantor, while it may also be prudent to make provisions that enable you to make any sudden repayments.
You may also have to assume long-term responsibility for the loan
Guarantor loans can be secured up to the value of £7,000, and this is a sizable amount that may be challenging to repay for some. This can cause significant financial issues, and should you become a guarantor for a borrower that subsequently enters into a debt management plan or an IVA you will immediately become liable for all monthly repayments until the loan is settled. This is no small consideration, so make long-term plans for what may lie ahead as a guarantor.
Your Financial Details and History will be appraised
Interestingly, as a guarantor you will be vetted as tenaciously as those who apply for a loan in the first instance. This means that your financial details and credit history will be appraised in great detail, and reputable lenders will have strict standards that must be met if you are to qualify as a guarantor. This will create a footprint on your credit file, so you must allow for this and be prepared to provide documentation that supports your financial standing (such as wage slips, bank statements and tax returns).
