The Top 5 Reasons to Love Guarantor Loans

When someone signs up as a guarantor for a credit agreement, they assume responsibility for loan repayment. This means that in the event of failure of repayment, the co-signer or guarantor would be responsible for paying back the debt.

Guarantor loans are the most appropriate kind of loan for people who do not have collateral and are in a bad credit situation. Many people can avoid bankruptcy by taking out a loan in order to stay afloat financially. Most of the time, people who need loans are the people who do not have enough collateral. That is the reason a guarantor loan might be appealing. On the part of the lender, as long as the borrower is able to pay the monthly repayment, there is a very strong possibility they will grant the loan.

What is a Loan Guarantor?

Someone who promises to pay off the debt on your behalf if you fail to make scheduled payments is known as a loan guarantor.

• The guarantor becomes bound by a legal obligation to repay the loan, and the lender has the legal guarantee from the guarantor to make the payments if the borrower errs in making repayments.
• The lender may register a record of the loan on the credit report of the co-signer. When the guarantor takes responsibility for repayment, a financial link is drawn between the credit reports of the co-signer and the borrower.
• As a guarantor, you can review the borrower’s financial report before agreeing to become a co-signer. Similarly, the lender will also review the credit report of the guarantor before accepting them as co-signer.

By accepting to become a guarantor, you take a huge responsibility on your shoulders to repay the loan. A guarantor’s good credit rating can come as a blessing in disguise for a borrower with an adverse credit record. The latter can use it for improving their credit status.

If the borrower is able to make repayments in time, it will help improve the credit status of the guarantor because they have demonstrated a high degree of financial responsibility. However, if the borrower is not able to make timely repayments, it could have a bearing on the co-signers credit report as well, especially if they too cannot make payments on time. It will count against their credit rating. The guarantor could receive collection calls from the lender. It means that if the end-borrower defaults on the loan the company can pursue the guarantor for the money, a turn of events that could wreck their credit record along with their relationship with the borrower.