Unsecured Guarantor Loan

A guarantor loan is a type of unsecured loan that requires a guarantor to co-sign the credit agreement. A guarantor is a person who agrees to repay the borrower’s debt should he or she default on agreed repayments.

Guarantor loans are often seen as alternatives to payday loans and associated with the sub-prime finance industry, due to them being aimed at people who have no credit score, due to having never obtained credit in the past, or people with a damaged credit score, due to having missed payments towards debt in the past.[1]

Although guarantors are a relatively new introduction to the unsecured loan market, it's not uncommon for people to be asked to provide a guarantor to co-sign other forms of financial agreement, such as in residential letting contracts, where young people without previous references are often required to provide a guarantor [2] and in the mortgage industry, where guarantors are often used to help people obtain a mortgage when they would otherwise be declined due to being considered a credit risk.[3]

Consumer Demographics

Users of guarantor loans are often people who would be rejected by mainstream lenders, such as banks and credit card providers, due to having less than perfect credit scores. There are an estimated 7 million consumers in the UK who are ineligible for a bank loan because of their credit score.

Some guarantor loan companies aim to position themselves as an alternative to payday loans, by offering loans at lower APRs than those offered by payday loan companies, whilst still higher than prime-credit consumers can access through mainstream banks.[4]

Guarantor Loans in the Market

The future for guarantor loans is currently looking promising, with applications on the up and variations on the standard guarantor loan model being tested and considered. There are a number of large and growing players within the sector who will be looking to out-compete each other in the coming months with lower APRs, more inclusive product variations and branching out to other areas, such as the retail credit market. However, this does not mean automatic success for all – there’s still a long way to go in convincing the public that guarantor loans are the go-to choice.[5]

Guarantor lenders have vastly different criteria with differing age ranges, income ranges, employment and residency statuses. APRs currently range from 39.9% and 59.9% for homeowner guarantors . Depending on the lender, APRs for tenant guarantors can increase dramatically.

See also

References

    1. ↑ "Social lending, guarantor loans, credit unions, stand-alone overdrafts: how alternative credit works". Daily Mail. 2013-03-02. Retrieved 2013-04-18.
    2. ↑ "Guarantors in tenancy agreements". Letting Focus. 2011. Retrieved 2013-04-16.
    3. ↑ "Lenders get innovative to give first-time buyers a boost". The Independent. 2013-01-20. Retrieved 2013-04-16.
    4. ↑ "Can old-fashioned guarantor loans offer an alternative to payday loans?". The Independent. 2013-04-09. Retrieved 2013-05-02.
    5. ↑ "The Public Perception of Guarantor Loans". Talk Loans. 2013. Retrieved 2013-11-01.
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