Rather than providing a guarantor loans, we have an alternative option that is superior.
Here is how Drafty’s credit line can be beneficial for you:
- You will receive a swift decision. If approved, the funds will be transferred to your bank account in less than 90 seconds.
- You can apply for as much as £3000 and withdraw any amount within your approved limit whenever necessary.
- After your initial use of Drafty, you can withdraw funds up to your set limit again without needing to apply anew.
- We do not impose any additional fees. Moreover, you only incur interest on the amount you utilize. If you do not use your credit, it won’t cost you anything.
What is a guarantor loan?
A guarantor loans is a financial arrangement where an individual or entity promises to repay your debt if you, as the primary borrower, fail to do so. Let us break it down:
A guarantor is someone who guarantees to pay off a borrower’s debt if the borrower defaults on their loan obligation. Essentially, they act as a safety net for the lender, ensuring that the loan will be repaid even if the primary borrower faces financial difficulties and cannot fulfill their obligations.
Role of a Guarantor:
The guarantor provides assurance to the lender that they will step in if the borrower cannot repay the loan.
Guarantors often pledge their own assets (such as savings or property) as collateral against the loan.
Lenders require guarantors when borrowers lack sufficient credit history, income, or collateral to qualify for a loan independently.
Types of Guarantors:
There are four types of Guarantors:
Personal Guarantor: Individuals pledge their personal assets to secure the loan. For example, this type of guarantor is common for personal loans or small business loans.
Corporate Guarantor: Companies or business entities act as guarantors, especially for business loans, using their assets to cover outstanding debt in case of default.
Government Guarantee: Government agencies may also act as guarantors for specific loans, providing a secure repayment guarantee.
Collateral Guarantor: Some loans require collateral as security. In such cases, the collateral itself serves as the guarantor, and the lender can seize it if the borrower defaults.
How do guarantor loans work?
Guarantor loans function similarly to other types of personal loans. Here is how they work:
- You borrow a lump sum of money from a lender. This loan can be used for various purposes, such as covering expenses, consolidating debt, or making a major purchase.
- You pay back the loan amount (plus interest) in monthly installments over a predetermined period. The loan term typically ranges from one to seven years.
- The key difference with a guarantor loan is that a third party (the guarantor) is part of the loan agreement. This person agrees to step in and make payments if you, as the borrower, default on the loan. A default usually occurs when you miss several consecutive payments.
- The guarantor becomes legally obligated to cover the outstanding debt, including any accrued interest or fees. However, it is essential to note that the guarantor does not have any legal right to the loaned money or anything purchased using the loan proceeds.
- While having a guarantor can improve your chances of loan approval, there is no guarantee. Approval depends on both your financial profile and that of your guarantor. Anyone you trust whether a parent, sibling, friend, or colleague can serve as a guarantor.
Who can apply for a guarantor loan?
Individuals who can apply for a guarantor loan typically include:
- Age Requirement: Must be at least 18 years old; some lenders may have a higher age minimum.
- Credit History: Should have a good credit history to assure the lender of their reliability.
- Relationship: Often, a guarantor is a family member or close friend whom the borrower trusts and feels comfortable discussing finances with.
- Financial Stability: Guarantors are usually required to be in a better financial position than the borrower, ensuring they can cover the loan if the borrower defaults.
It’s important for potential guarantors to understand the responsibilities and risks involved, as they will be legally bound to repay the loan if the borrower fails to do so. Guarantors should also consider how their credit score and credit limit might be affected by becoming a guarantor.
Who can be a guarantor for a loan?
A guarantor for a loan is someone who agrees to be responsible for repaying another person’s loan if they cannot pay it themselves. Here are the key points about being a guarantor:
- Eligibility: Generally, anyone over 18 can be a guarantor with job stability, good credit, and sufficient assets to cover the loan.
- Responsibilities: A guarantor is legally bound to pay off the debt if the primary borrower defaults.
- RisksBeing a guarantor is risky; personal assets could be at risk if the borrower defaults.
- Considerations: It is important to understand the borrower’s financial capability before agreeing to be a guarantor.
What are the risks for a guarantor?
Being a guarantor for a loan comes with several risks. Here are some key points to consider:
- Financial Responsibility: If the borrower fails to make payments, the guarantor is legally obligated to repay the outstanding debt, including any interest and charges.
- Credit Score Impact: The guarantor’s credit score may be damaged if the borrower misses payments or defaults on the loan.
- Legal Consequences: Guarantors could face legal action to recover any money owed, and they might also be responsible for legal fees associated with collecting payments.
- Loan Eligibility: Acting as a guarantor can affect your own loan eligibility because it impacts your creditworthiness and debt-to-income ratio.
- Asset Risk: Personal assets of the guarantor might be at risk if used as collateral for the loan.
How is Drafty an alternative to guarantor loans?
Drafty offers an alternative to guarantor loans with several key features:
- Flexibility: Drafty provides a revolving line of credit, allowing borrowers to access funds as needed, up to their approved limit.
- No Guarantor Required: Unlike guarantor loans, there is no need for a guarantor to co-sign or guarantee the repayment of the loan.
- Fast Access to Funds: If approved, the cash can be sent to your bank in under 90 seconds.
- Transparent Costs: There are no hidden fees, and interest is only paid on the amount used. The costs, fees, and repayment terms are presented upfront.
Drafty is designed to be a more flexible and accessible option for those with bad credit or those who prefer not to involve a guarantor in their financial affairs.
FAQs
Are Guarantor Loans Guaranteed?
Guarantor loans are not guaranteed, but they can be helpful for individuals with a below-average credit score seeking financial aid. A guarantor co-signs the loan agreement, guaranteeing that the borrower will repay the loan. If the borrower defaults, the guarantor becomes responsible for the debt.
Is There Any Way Out of a Guarantor Loan?
Unfortunately, there is no easy way to exit a guarantor agreement. Lenders approve loans based on the guarantor’s credit history and other factors. The guarantor remains bound by the agreement unless specific conditions are met.