Guarantor loans in simple terms
Many thousands of people will looking around on the internet for a guarantor loan as you are reading this. The problem with trying to find a loan at the moment is the fact that the global credit crisis has made it so much more difficult to:
1. Obtain a guarantor loan
and
2. Find any type of secured loan
The reasons for the credit crunch are well documented and there is no time for us to go into the ins and outs here, suffice to say that the credit crunch is with us for the forseeable future and as consumers, we all need to find a way around it, in terms of mortgages and loans being made available to us.
The reason it is now much harder to obtain a guarantor loan is because lenders have either tightened their lending criteria, thereby making it much more difficult for a customer to be ‘approved’ for a loan or worse still, lenders have ‘pulled’ their loans from the market in response to the difficult trading conditions in the UK.
In terms of Guarantor Loans, these are even harder to obtain because of the lack of security being offered to the lender and we will explain why below.
There are two types of loan available in the UK.
Secured loans and unsecured loans. A secured loan is really what it describes. The loan is offered to the customer by the bank or loan company and the customer offers in return, security for that loan in the form of a house or sometimes, a car. This means that if the customer (the borrower) is unable to repay the loan for any reason, then the bank or loan company will look to repossess the customers car or house if they don’t repay the loan. This means that the bank or loan company has ’security’, ie. they get something back if the customer defaults on the loan and generally speaking, this is the safest option for any lending institution and this is also the way mortgages are processed.
An unsecured loan means that the loan is being offered by the bank or loan company but with no security for that lender. ie. if the borrower defaults on the repayment then the lender has no real comeback other than being able to take the borrower to court. The borrower will not have a house to offer up as unsecured loans are primarily for tenants and not homeowners. This situation means that very few unsecured loans were approved prior to the credit crunch and even less now that it is here.
However, there is an alternative and a guarantor loan provides just that…
A guarantor loan means that the loan is still an unsecured loan (ie.no security still) but this time the borrower is being supported or ‘vouched for’ by a guarantor. In effect, a guarantor guarantees the loan repayment meaning that if the borrower defaults, the loan will have to be repaid by the guarantor of the loan, not the person applying for the loan.
As an example:Miss D wants to borrow £5000 for a car but she has a couple of CCJs and a few months arrears on her credit card. She applies to everyone for a loan but they all say no. However, one loan company she applies to will allow her to apply for a loan with a guarantor in place so she get’s her Uncle, Mr D to vouch for her on the application. The loan company then process the loan in Miss D’s name but only credit check Mr D as he is the one who will be responsible for the loan repayment, should Miss D not be able to repay the loan for any reason.
The whole process of obtaining the guarantor loan is quick, simple and without fuss and you should have your loan in your bank within 24 hours!
