A guarantor loan requires another person to agree that if you’re unable to repay the money you’ve borrowed, they will.
When a lender agrees to lend you money, they need some assurance that they will get it back. One way they can do this is by looking at your credit history to see how well you’ve managed your borrowing in the past. This lets them make an educated guess about your ability to repay them. With a guarantor loan, the lender has the guarantor to act as a safety net. So although it’s you who is borrowing the money, this type of loan is actually a three-way agreement between yourself, the lender and the guarantor.
Because of the added security provided to the lender by a guarantor, this type of loan could be an option for people who may not have the best credit history and will otherwise struggle to be approved for a loan from a high street lender. However, while a guarantor loan may sound like an easy solution to money problems, it can be a lot more complicated. Let’s take a closer look at how these loans work.