Guarantor loans are primarily for people with a bad credit history but they can also be used for people who are unemployed or who have never taken a loan out before. This is because there will be no credit history for the bank to work with and with no credit rating it is hard for them to assess the borrower, this is risky for the creditor because they have no proof that borrower will be able to pay back the loan.
Unsecured guarantor loans are underwritten by someone other than the person borrowing the money who will agree to guarantee the repayment of the loan, should your own repayments fall into arrears or should any other unexpected event happen. This obviously means that a bad past credit history is no longer an issue. Any missed payments, arrears, CCJs or default notices which you may have will now be ignored.
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Applying for a guarantor loan
Getting a guarantor loan is very easy. You just need to find a guarantor that is a homeowner, 21 or over and has a decent credit history. It's not easy to find one and for some people this is the difficult bit. Usually it is a close relative or family member who opts to put their name down to vouch for the person taking out the loan. Sometimes it is a friend rather than a relative. Whatever the circumstances, it is important that the person in this role knows exactly what he or she is undertaking.
The person acting as guarantor would need to understand their exact position of this loan and needs to understand that if the borrower defaults on the loan, it will be his or her responsibility to take over the payments until the loan is paid back in full. There is obviously a risk involved and the guarantor must make sure they fully appreciate this. The guarantor should have a very good relationship with the borrower so they can discuss any problems with the repayment of the loan and take action accordingly.
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