According to the March 05, 2016 report of BBC, around 7 million British citizens are not eligible for bank loans. The Financial Conduct Authority introduced stricter rules for payday lending in January 2015. The recent BBC’s report claims that the guarantor loans could be as damaging as payday loans. However, a guarantor loan is not damaging to national economy or individual’s financial status if it is borrowed for the right reasons and after proper evaluation that the borrower can repay the loan amount.
The types of guarantor loans differ from lender to lender. Guarantor loans are becoming more popular after new rules on payday lending because these loans can be used for a number of reasons including these.
Short-Term Guarantor Loan
Guarantor loans are unsecured loans, like any other unsecured loans. They may be used for any financial emergency including paying your mortgage, wedding expenses, or any other reason. However, the guarantor loans should be ideally used for a financial emergency only. The debt advisors define a financial emergency for guarantor loan as a condition in which, survival becomes impossible and there is no loan option other than a guarantor loan.
Guarantor Home Loan
In a guarantor home loan, you can take out a home loan by using the equity of your guarantor as collateral.
Limited Liability Guarantor Loan
Limited liability guarantor loans are used when you can cover up a specific amount of loan but need some extra amount to fulfil your need. A limited liability loan works by offering guarantee on some percentage of the loan amount. For example, if you can repay the 75% of the total amount that you need to fulfil your need, you may ask a guarantor to provide guarantee for the remaining 25% of the loan amount.
Guarantor Car Loan
Guarantor car loan works like guarantor home loan if you need long-term loan. However, if you can pay maximum amount of the loan as down payment, you can take the remaining amount as short-term guarantor loan.
Can You Pay Your Debts with Guarantor Loan?
A common question that many borrowers want to ask is whether they can use a guarantor loan to pay their debts or not. You can use a guarantor loan for paying your loan repayment, including mortgage. However, it is important to make sure that you can repay the guarantor loan amount as well as its interest without letting it affect your next month’s loan repayment.
Understanding the concept of a guarantor loan can help you understand its utility. A guarantor loan works like a payday loan. You can use it for all purposes of short-term loans. However, not all lenders provide all types of guarantor loans. The borrowers need to research the market to find the suitable types of lender. Along with it, you also need to compare the interest rates and prices of all lenders to find the right deal. The interest rate of a guarantor loan depends on the creditworthiness of the borrower.