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If you needed a loan in the past, then the only option open to you would be to ask your bank manager. These days, there are plenty of places to obtain credit from, with both shop-front and online-only creditors available for anyone to use. If you’re looking for credit at the moment then the options available to you can be a little overwhelming at first, so it’s worth knowing as much as you can about your options. This way, you’ll be able to apply for the credit option which best suits your needs and your lifestyle. What works for one person may not work for another, so it’s important to conduct your own research and to make up your own mind. In this article, we’ll look at guarantor loans and how paying in multiple instalments can benefit you in more ways than one. 

What is a Guarantor Loan? 

A guarantor loan is an example of one of the oldest styles of borrowing money, although you may have only just heard about it. The basic principle of a guarantor loan involves a second applicant – the guarantor. Their job is to vouch for the person wanting the loan, confirming that they are trustworthy and that they are able to pay it back. The guarantor, by doing this, does not have to pay a penny or be left out of pocket. However, if the loan payments are not made on time or in full, then the lender will ask the guarantor to pay what is owed in place of the original borrower. 

Guarantor loans were essentially the only type of loan you could get in the distant past, but they fell out of favour once banks and building societies were able to transfer information to each other via improved means of communication – such as telephones, fax machines and computers. Once information about a customer’s financial history could be shared, it meant that having someone vouch for the borrower was unnecessary. The information banks held about their customers evolved into what is known today as a credit history, and while this system worked well for a time, the financial crash of 2008 meant that many people suffered from a poor credit file when they couldn’t afford to honour their payments during this time. As the demand for borrowing was still there, and as the banks became more and more wary about lending money, guarantor loans made a comeback as a viable and useful form of lending. 

Nowadays there are a number of guarantor lenders to choose from, where you can borrow more money at lower rates than you may get through more mainstream lending avenues. Guarantor lenders cater for those who would struggle to get credit from their bank and have helped millions of people secure the credit they need with manageable repayment terms. 

Who Can Be My Guarantor? 

The addition of the guarantor is the main difference between this type of loan and other, more ‘standard’ ways of borrowing money. The lender does not provide a guarantor for you – instead, you will need to find someone who you trust (and who trusts you) to agree to stand as your guarantor. There are usually stipulations in place which say your guarantor must have a good credit history, a sufficient income and be below a certain age. They may also have to be a homeowner, although this is not always the case. 

The most common guarantors tend to be close family members like parents or aunts/uncles. Other people use their partner as their guarantor (not all guarantor lenders will allow this, so it’s important to check before applying to ensure you aren’t turned down) and others use close friends. When it comes down to it, it doesn’t really matter who you use as long as they fit the criteria set out by the lender and they are happy to stand as your guarantor. They will obviously be made fully aware of their responsibilities and will be kept up to date by the lender. 

How Can Multiple Payment Instalments Benefit Me? 

One of the greatest benefits of a guarantor loan is that the money is to be paid back in manageable monthly instalments. The full loan amount plus the amount you have agreed to pay in interest (this is displayed as APR which stands for Annual Percentage Rate and is shown as the percentage of your loan amount that you will pay as extra over a 1 year period) is split into pieces depending on the length of time you have chosen to pay it back for. For instance, a loan which is to be paid back over 1 year will be split into 12 pieces – one for each month of the year. 

Your monthly instalments will be expected to be paid on or before the date which has been agreed with the lender. If an instalment is late, then the lender should get in touch with you and your guarantor to work out the next steps. Asking the guarantor to pay in your place is usually a last resort. 

The great thing about paying in monthly instalments is that you can build up your credit file naturally, simply by sticking to the repayment schedule. Whenever you make a payment in full and on time, this will show as a positive on your credit file and will make you look more favourable to other lenders I the future. However, miss a payment and your file can go in the other direction…

How Do I Apply For A Guarantor Loan?

Guarantor loans can mainly be found online, with application forms also being paperless. This is good news for those who find forms to be time consuming and complicated – online applications are simple to use and your progress can often be saved for you to come back to later. If you can, have your guarantor ready to fill in their side of the application so that you can save time and get the money in your account quickly. It’s likely that the lender will need to speak to you on the phone to complete the application process, so be prepared for this when you apply. 

REPRESENTATIVE APR 48.9% (FIXED)

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