A guarantor loans requires a person that can guarantee the loan amount that you take from the lender known as the guarantor. A guarantor can be anyone that is close to you and accepts the application which guarantees you for the loan you take.
There are a few reasons that force you to become a guarantor. If you cannot lend the money to the borrower directly, if you want to help the borrower in building a good credit score for himself or if you want to lend him money, but want him to manage his loan themselves.
You simply need to sign a form that is sent to you by the lender. Once your details are received, the lenders contact you to check your details. Being a guarantor is not only a responsible task, but a very risky one too. A guarantor should be above 21 years of age, with a good credit history to be applicable. Since, it is a promise by the guarantor to give the payment back if the borrower is unable to pay, therefore it is a must for the guarantor to have enough earnings, making sure he can cope with the repayments later.
There are a few reasons that would want you to guarantee your close ones for the loan. If you want to improve the credit score of the borrower or if you cannot give the loan amount directly to the borrower.
Once your approval is accepted, the loan payment is transferred directly to the guarantor’s account. The amount is transferred to the guarantor’s account to give you some time to rethink, before transferring it to the borrower’s account. After the payment is made, you are sent a letter of contract along with all the details that follow. However, it is the guarantor’s responsibility to update any changes that are made regarding the payment method. The guarantor can even check the loan statement and every detail by going online and entering your email id and password.
Once you are approved to be the guarantor, your lender checks your credit file, making sure you are financially stable. However, this credit check will have no effect on your credit score. Your credit score is affected only if the borrower as well as the guarantor refuses to repay. This refusal, by both the guarantor as well as the borrower will result in serious actions taken by the lender. The lender can take them both to the court where a complaint is filed against them. Therefore, to avoid future complications, it is a must to make sure you are applicable.