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Guaranteeing a Guarantor Loan

Why you cannot guarantee a loan

From the start the title of this article should raise alarm bells – nobody should be guaranteeing you a loan. If they say they can, they will be telling you a lie or operating illegally without doing any background checks or searches on you.

Why can a loan not be guaranteed? There are many reasons why a loan cannot be a forgone conclusion – but the basic reason is that it is a lenders responsibility to ensure that the borrower is borrowing within their means – simply put “can they pay the loan back?” To assess whether you can pay back the loan needs checks on income, existing credit and outgoings.

Making sure you only get a loan when you can afford one

You will hear, or may believe, that a guarantor loan is guaranteed. It simply isn’t. A guarantor loan is a loan that you, as the borrower, have got a “guarantor” for. A guarantor is someone who will vouch that you will pay back the loan and if you don’t – they will pay it for you. This is a massive form of security for the lender as they have 2 people that could pay the loan back – as opposed to a normal unsecured loan which where there would only be one. I always think of a guarantor loan as a very non-British type of credit. What I mean by this is, in general, the British don’t like talking about their finances. A guarantor loan means you need to find your guarantor and ask them to vouch for your finance application – not something the British often find very easy to do!

So, if you can find a guarantor then the loan is guaranteed? Right? Wrong. Most lenders will need to do checks on the guarantor as well – because they are the added security of borrowing. I won’t go into massive details but some guarantor lenders will insist on the guarantor being a homeowner, some will say that it cannot be a relative and some will state that the guarantor has to have been living in their property for a certain number of years. This guaranteed aspect is looking less guaranteed isn’t it?

I want to be clear here – I am far from anti-guarantor loans – I’m anti brokers who insist that this type of borrowing is forgone conclusion. Guarantor loans offer a great way of borrowing, sometimes at cheaper rates of borrowing than other types of loan (payday loans for example) and can sometimes offer higher loan amounts than you may be approved elsewhere.

Simply, don’t be fooled by offers of guaranteed finance (brokers who charge a fee often use this type of loan to justify their fee) – all loans need to be applied for – all lenders need to do checks. It’s the right way to do things and protects the lenders and you - the customer.

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