A guarantor loan is an unsecured loan that involves having another person agree that they will repay your loan if you default on your repayments.
This type of loan might be a suitable option if you have difficulty getting accepted for credit, have a poor credit rating or no credit history at all.
A guarantor can be any person of your choice, provided you both meet the criteria of the selected provider and both agree to the terms of the arrangement. In most cases however, your guarantor will be a close friend or family member who trusts you and understands your financial circumstances.
As your guarantor essentially promises the lender that they will get their money back, the lender will want to ensure that the loan is affordable for you and for your guarantor. This means that you both will have to go through the application process so that the lender can make a decision on whether to lend to you or not. It is important to note that both parties will have a credit check performed at this stage. Often, the loan will be deposited into the guarantor’s account so that they have the opportunity to return the money should they change their mind about their decision to be guarantor for the loan.
Both the borrower and the guarantor will have a set of criteria that must be met in order to be eligible to apply, and these conditions will vary slightly between different providers. For the majority of guarantor loan providers, the borrower will need to meet the following basic criteria:
The lender also needs to ensure that the guarantor can afford to repay the loan in the event that the borrower defaults on their repayments. For the majority of guarantor loan providers, the guarantor must meet the following basic criteria:
Find out more about Polar Credit’s lending criteria.
The cost of a guarantor loan will vary across different providers, but as they still carry a high level of risk, they tend to have high levels of interest.
The rate of interest charged is dependent on a number of factors, such as the loan amount, the duration you are borrowing for and your credit profile, however the standard APR for a guarantor loan is around 50%. Though it may seem like a lot, this can be much cheaper than bad credit payday loans or other bad credit alternatives, which often charge much higher rates when based on your credit profile alone. You might also be able to borrow more with a guarantor loan, than you would with other bad credit loans.
There is a considerable amount of risk involved in becoming a guarantor for someone, so it is important that you think carefully before you decide to take on that responsibility. If the borrower fails to make the agreed repayments, you will be responsible for paying the balance in full. If you both fail to keep up with the repayments, the lender can take you both to court to recover the money. As a borrower you must also be sure that you can afford to make the repayments. If your friend or family member who has agreed to be your guarantor, has to make repayments to settle your loan, they could be left in a difficult financial situation which may have a serious impact on your relationship.
A credit line can be used as an ongoing form of credit, whereas a guarantor loan works just as a personal loan does and a suitable guarantor is required in order for you to get the loan.
When applying for a credit line, your credit limit is based on your credit rating alone and your limit may increase or decrease based on your borrowing history or if there are any changes within your credit file. With a guarantor loan, the rate of interest and the amount you are allowed to borrow will depend on your credit rating as well as the credit rating of your guarantor. The guarantor will typically have a good credit rating, and guarantees the lender that they will get their money back, so you may be able to borrow a higher loan amount than you would with your credit line.
Once you have been approved for a guarantor loan, the loan will be sent to your guarantor, who has two weeks from that point to transfer the loan to you or if they no longer want to be a guarantor for your loan, transfer the loan straight back to the provider. With a credit line, once you are approved you have full and direct access to the funds which you can then withdraw into your bank account to use as and when you need.
You have the option to make only the minimum payment towards your credit line every month or full repayments, which may make it easier for you to manage your finances in a way that is affordable for you, whereas a guarantor loan is likely to be a larger loan, and you might need to make larger fixed monthly repayments towards settling your loan or be making fixed monthly repayments over a longer period of time.
We created the Polar Credit Line to provide you with access to credit in a fast, easy and transparent way. Polar Credit is a revolving credit facility that can help you manage your monthly expenditure.
There are many different types of credit products available on the market and some will be more suitable than others for your circumstances. If you’re unsure about borrowing with a guarantor loan, you could also consider these other forms of borrowing: