A guarantor loan is a new type of loan in the UK, the basic idea is simple. Another person co-signs the loan with the loanee, this means if the loan is not repaid there will be repercussions for more than one person and the loan is viewed as less risky to the lender and enables the customer to borrow more money or pay a lower rate of interest.
Typically guarantor loans are being signed for by parents who want to help their children. Young adults with limited credit history and no assets to lend against are often going to get a bad deal when it comes to credit. Young adults could be helping raise a deposit for a new place to live, a new car or even a training course to help their work life.
Guarantor loans are sometimes seen as alternatives to payday loans and associated with the sub-prime finance industry, due to them being aimed at people with a less than perfect credit score, because of missed payments towards debt in the past. However, this is only one aspect of guarantor loans. They are also aimed at young people who have no credit score, due to having never obtained credit in the past such as new graduates just embarking on their career – these people are often high earners with sensible financial habits so can afford the repayments but do not have the credit history to reassure the lender about the level of risk. As mainstream lending criteria is often automated and does not come with a personal review of the applicant’s financial circumstances it is sometimes the only way a young adult in their first job can secure a loan.
These loans are sometimes used by angel investors to help out startup companies where the investor is unwilling or unable to provide direct funding.
If you are looking for quick funding there are a number of companies offering same day guarantor loans.