Guarantor loans on the rise
Guarantor loans are something which have become more prevalent in recent times, with balances of them more than doubling when compared to three years ago. In fact, estimations suggest that in 2019 these balances are closing in on an incredible £1 billion total.
What are guarantor loans?
Usually when applying for financial products such as bad credit loans, there’s an agreement between the customer and the lender. However, in the case of a guarantor loan, a third party enters the frame. This person is invited by the borrower to be a ‘guarantor’ who will guarantee to cover the repayment if the lender isn’t able to.
This provides greater security for the lender which can have a positive effect on interest rates.
Who are guarantor loans for?
Guarantor loans used to be synonymous with those with a bad credit history, or who have taken out little credit to date. However, with the currently financial climate, they have become popular with the under 30s who use their parents as a guarantor to secure a loan for a house, or perhaps some form of education. It’s a great way for parents to help their child without actually putting themselves out of pocket. However, unlike bad credit loans, the guarantor must have a good credit history.
Something to be wary of
The Financial Conduct Authority have raised concerns over guarantors. They believe that due to the massive increase in those applying for these type of loans, there’s a higher chance of some guarantors not fully comprehending the ramifications of the original customer not making the prearranged payments.
What does this all mean?
Guarantor loans are a great option for those who have a bad credit score, but know someone with a good one who is willing to back them. By using a trusted guarantor, lenders are more likely to provide you with a loan which is great as long as that guarantor fully understands what they’re signing up for. If you’re looking for a guarantor loan, bad credit loans, or any other financial product, Loanbird are here to help you secure the right option for you.