If you are in need of credit, but you either have an adverse credit history or have no history of borrowing money, a guarantor loan might be a suitable option. They are unsecured loans where a guarantor who commits to repaying the loan if the primary borrower fails to do so. This provides an additional layer of security for the lender, who is taking the risk of lending to someone with an adverse credit history.
In order to take out a guarantor loan you must first find a guarantor – typically a friend or family member – who is willing to make your payments if, for any reason, you fail to be able to do so. The guarantor will typically be called on to pay 48 hours after the initial missed payment.
Because of this backing, your credit history (as the borrower) will not be important when you apply for the loan, although the provider will still assess your ability to make payments. The main focus will, instead, be on the financial stability of the guarantor.
Guarantor loans typically come with high interest rates and because of this and the responsibility that will be placed on them, it is important to have a good, trusting relationship between yourself and the guarantor. The guarantor can be anyone so long as you do not share financial responsibilities with them already – for example, if you have a shared bank account or joint mortgage with your partner, you may not use them as a guarantor.