A guarantor loan is a type of loan wherein your guarantor (family or friend) agrees to repay your debt if you cannot afford the payments. This usually happens when you default on debt payments.
Guarantor loan has been widely common recently. This happens when you cannot borrow money yourself; thus, needing a guarantor that can help you access credit.
Furthermore, your friend or family who acts as your guarantor will be liable for repaying the loan. This can also be done when you wish to get mortgages and rental.
Financial Help During the COVID-19 Outbreak
There are measures in place to assist people who ave been in financial crisis due to the coronavirus outbreak. These involved payment breaks for loans, mortgages, modifying overdraft charges, credit cards, or tenancy assistance. Besides, the moratorium period for debts in Scotland is also extended for a period.
You can read our guide to help you keep your debts under control:
- Financial Help Available During the Coronavirus Pandemic
- Emergency Help with Food and Money
- Government Grants with Winter Gas and Electricity Bills?
- Government Assistance with Mortgage Payments
- Paying Debts: How to Reduce My Outstanding Debt?
- An Overview Of Debt Management Plans – Debt.org.uk
Guarantor loans are mostly introduced to individuals who have poor credit or has a hard time getting credits. The interest charges for several guarantor loans are usually high. Its interest rates are usually around 50% APR or more. In fact, huge amounts are even paid for a couple of years.
Because of the high-interest charges, it will result in paying back more than what you owe for a longer period. Since the loan is guaranteed by a family member or a friend, the debt is likely treated as joint debt. This means the borrower and the guarantor are both accountable for the debt.
How does Guarantor Loan work?
- The creditor or lender agrees to release the money based on the capacity of the guarantor to repay it in full
- Your guarantor will have to present pieces of evidence or proof that they can afford to repay. If your guarantor is a homeowner, the debt might be secured against your home.
- In some cases, the money is given to the guarantor to hand it to the borrower
- If you have guarantor loan, make sure that you negotiate for affordable payment with your creditor before your account defaults.
What results if I don’t repay a guarantor loan?
- If you have arrears on guarantor loan or unable to repay it, the creditor will ask your guarantor to keep the payments up to date. It is normally done from their bank account using a CPA, which is normally arranged prior the loan approval.
- Your account will default if you don’t make any payments. If this happens the payments will be taken from your guarantor using the Continuous Payment Authority.
- The debt is dealt with the process of debt collection. This means your creditor can use a debt collection agency to recover the debt.
- The default will be posted on your credit files. Since a guarantor is treated as joint debt, both your credit file will be affected.
This puts significant peril on the guarantor, as they’ve allowed repaying the debt if you can’t. If your guarantor is a family or a friend, having them pay the debt can affect your relationship. You can put them at risks and stress especially if the debt is secured against their home.
I borrowed to Amigo Loans, do I have to pay it?
Amigo Loans are remaining reviewed for reckless lending, but as they are however negotiating, you should proceed with your instalments, if you can. If you can’ afford monthly payments, it’s time to get debt advice.
Are guarantor loans a great plan?
Although this kind of loan appears a great alternative for people who wants to rebuild their credit, the risks are too severe.
You should be conscious of the possible expenses and high-interest rates. If you prefer to consider a guarantor loan, you might need sound advice from our debt specialist to know the other alternatives that can help you.
Help and Advice with Guarantor Loan?
Here in Debt.org.uk, we aim to help you get back on track and knock down your debts. If you are thinking of a debt solution that fits you best, we recommend that you use our online debt advice tool or call us straight away.