What Are Guarantor Loans?

Even back in the years of inexpensive and accessible borrowing, it was always tougher for people with inadequate credit ratings to get credit. Naturally, these days, the economic situation means that unless you have very good credit, arranging finance is extremely hard. This is especially the case for those of us without a home to use as security who can only think about applying for for an unsecured loan.

Of late, a new kind of financial product has started to come on the market which will be interesting to many of us with adverse credit ratings who are finding it hard to get the loan they need. This new type of product is called a 'guarantor loan'.

The fundamental idea is that the actual applicant for the credit doesn't need to have a superb credit rating, and not even near to it. All they need is a bank account and proof of identity, plus another very important thing: a friend or family member who is willing to underpin your application by signing up as a guarantor.

This guarantor fundamentally promises to take on the duty of clearing the debt should the primary applicant get behind. Because of this, the guarantor needs to have a good credit rating, and also to own their home.

Although guarantor loans have the advantage of making finance available to individuals who without them would have little opportunity of having their application approved, there are a few main drawbacks. Firstly, not all of us are able to find someone prepared to act as a guarantor who also has the required credit rating and security to offer.

Secondly, not everyone will feel happy with the thought of making use of their parents to secure their loan. Finally, these loans are far from cheap when compared to standard unsecured finance - although they're far from as overpriced as some other sorts of finance such as cash advance loans.

Despite these drawbacks, if you're desperate for finance and have been declined everywhere else, and can persuade someone to sign up as a guarantor, then one of these loans may be precisely the type of thing you've been looking for.

Martin writes for Loans for Tenants where renters of all financial backgrounds can apply for an unsecured loan.