August 17, 2020
If you're having trouble getting a loan approved, or want to help someone get a loan approved, asking for a loan
guarantor (or going guarantor on a loan) can be a great way to get the approval you seek.
In this article, we'll look at loan guarantors and how they can affect the loan process.
A loan guarantor is, simply put, someone you nominate to repay your loan using their equity in the event that you're unable to fulfil your repayment obligations. Going guarantor on a loan can be a way to get a loan approved if a lender is hesitant, such as in the case of bad or no credit, since the lender will have a security net in the form of the guarantor.
There are numerous types of loan guarantors known as guarantees. You'll need to find the right one to help you secure your loan, depending on your financial situation and the loan you intend to take out. They include:
The specific requirements of a guarantor will depend on the lender's criteria, but in general, a guarantor should:
Going guarantor on a loan works by offering up a form of collateral – whether it be property, income, or a similar asset
– in order to reduce the liability of the borrower. This means that, if the borrower is unable to repay the loan, the
guarantor steps in and takes over repaying it. In a worst case scenario, if the original borrower cannot repay the loan,
and the guarantor is also unable to repay the loan, the lender will be able to sell the agreed upon collateral in order
to break even.
Being a guarantor does not automatically give you special rights over the contents of the loan. If the loan is being used to purchase a car for example, you won't have any ownership over the car – you'll just be required to get money back to the lender.
There are a number of risks associated with becoming a loan guarantor, and they all need to be carefully considered. For
example, you should understand that your guarantor is ultimately responsible for your loan if you are unable to make
repayments – if you cannot repay your loan, it's possible that your guarantor's property will become the lender's.
If you fail to repay your loan, you could also negatively impact your guarantor's credit score, but beyond this, it can be damaging on a mental level. Money stress can ruin personal relationships, so you could actually end up losing family or friends over a loan.
Guarantor loans carry with them several benefits. These include:
Unsure if a guarantor is right for you? Talk to us today to find out how Sunshine Loans can help you with a small personal loan of up to $2,000, or use out online application form to apply and receive your money in less than 24 hours.