Nowadays, there are numerous ways you can borrow money, even if you don’t have a good credit score. Credit rating doesn’t have to be your obstacle. For instance, loans that require a guarantor are one example of a bad credit loan, which means borrowing money even if your credit score is poor. When this is the case, then you must be wondering who can be a guarantor?
A guarantor is a person who vouches for your and providing a lender with the reassurance that the debt will be settled if a borrower fails to make his payment.
What is a guarantor?
A guarantor is a third party who agrees to meet the conditions and obligations you agree as well, but only if you are unable to fulfill them. The entire system is old enough and actually pre-dates the credit rating lenders use today to make decisions.
This is an excellent choice for people with a bad credit score, and instead of being rejected completely, you can successfully get a loan with the help of a guarantor.
Who can be a guarantor?
In theory, a guarantor can be anyone who is 18 years old. But, in reality, lenders are looking for an individual who will meet specific terms and conditions, before they accept your loan application. There are a couple of factors you should consider before you choose a guarantor.
The lenders usually check the guarantor’s credit history, as well as your own and make a decision.
The most desirable guarantors are those who are financially stable and have healthy finances. They have to be in a position to cover the debt if you miss any payments.
Many lenders also request guarantors who are homeowners. In this case, there is a tangible asset which provides security if something goes wrong with the credit repayments. However, many banks and lenders accept non-homeowners as well.
A guarantor doesn’t have to be someone who is related to you. He or she doesn’t have to your family member or spouse. On the other hand, lenders will be more convinced if there is a connection. It means that guarantor is committed to the responsibility.
A guarantor has to be a UK resident. For instance, if some legal actions need to be made against a guarantor, then he or she has to be a UK resident.
If a guarantor isn’t a homeowner, then he has to have significant income, which will serve as a proof. This can be savings, annual salary, investments, or something else.
What does guarantor do?
If he is lucky enough, then nothing. As long as borrower pays the loan, then the guarantor is off the hook. On the other hand, if a borrower fails to repay the credit, then the guarantor will be asked to repay the loan. However, if guarantor refuses to pay the debt, then the lends can take legal actions against the guarantor.
How can you choose a guarantor?
This is a massive responsibility for both parties, and you should use someone who can understand the significance of signing the contract. You should make a list of potential candidates and start with your family members because they are the first one to help you out.
Also, think about the financial stability of each person that makes your list. Could they afford the repayment if you weren’t able to?