While some people think that guarantor loans are a new form of lending, this isn’t strictly the case. It is fair to say that guarantor loans are extremely popular at the moment and many people are finding out about them for the first time but they are not a new or modern form of lending. In fact, the role of a guarantor was often the way that traditional lenders would determine who could receive a loan.
In this way, guarantor loans should be seen as a return to the traditional ways of obtaining finance, which is something that many people have been looking for.
It is easy to see why so many banks and building societies have been keen to utilise computer technology in determining who can obtain a loan. It speeds up the process and it removes the human element of deciding who gets the loan or not.
You can see why some bank managers or people in charge of loans could be swayed by a person’s personal circumstances, so knowing that this element is being taken out of consideration is definitely something that has appealed to a lot of professionals in the industry.
Of course, as guarantor loans are something different and not quite what people are used to, there have been some myths created about guarantor loans. It is important to know what is a myth and what is true, and this guide will help you determine what you should and shouldn’t believe when it comes to guarantor loans.
Myth Number 1 – A Guarantor Loan Must Provide Their Bank Details
This is not the case across all of the guarantor loan companies, and there are many firms which don’t require people to provide the bank details of their guarantor. This may be a make or break issue for some guarantors so knowing that there are some lenders who don’t require this standard of service is going to be of benefit to a lot of people.
Myth Number 2 – Guarantor Loans Have Very High Interest Rates
While the interest rates associated with guarantor loans are higher than the rates provided to people with great credit ratings from traditional lenders, it needs to be viewed in context. If you have a bad credit rating, there is a very good chance that you won’t be provided with the chance to arrange a loan from a traditional lending company.
This means that a guarantor loan or a payday loan is likely to be your two options. Sadly, this leads to a lot of people confusing these two loan types or thinking that they are interchangeable, which they are not. Payday loans have an extremely high rate of interest and you should be looking to avoid that style of loan at all costs.
A guarantor loan comes with a much more affordable rate of interest compared to a payday loan and the payback period of spread out over a much longer period of time. If you want to find a loan option that meets your needs and circumstances, you’ll find that a guarantor loan is the sensible option.
Myth Number 3 – A Guarantor Loan Is Secured On The Guarantor’s Property
Yes, a guarantor has to be a homeowner but this doesn’t mean that the guarantor loan is secured on the property of the guarantor. The fact that guarantors are required to be homeowners relates to the fact that the lender is looking for a guarantor that understands the gravity of the situation.
If the borrow fails to pay back the loan, the responsibility falls on the guarantor, and if their credit score is at risk, they could have to pay higher interest rates or struggle for finance in the future.
You can see why some people would make the jump from a guarantor having to be a homeowner to saying that guarantors have to secure the loan on the property, but this is definitely not the case and is one of the most concerning myths surrounding guarantor loans.
While it would be fair to say that guarantor loans are far from perfect, they do provide an opportunity for many people to find finance at a far more suitable rate than they would normally be able to.
Andrew Reilly is a freelance writer with a focus on news stories and consumer interest articles. He has been writing professionally for 9 years but has been writing for as long as he can care to remember. When Andrew isn’t sat behind a laptop or researching a story, he will be found watching a gig or a game of football.