When a borrower approaches a lender for a loan, he or she, will often be asked for their credit scores. If the score is poor, or if the borrower has never been in the financial arena and does not have any form of credit rating, the chances are that the loan will be denied. It is, however, possible for such borrowers to obtain loans if they can get somebody to vouch for their loans and stand as guarantors for its repayment.
Guarantor loans can help people to achieve financial goals even if they are classified as risks. These loans are specifically aimed at individuals who have poor or no credit scores but requires them to be over 18 years of age, be employed for a reasonable period, and have earnings that can facilitate the repayment of the loan
. Often applicants who have never borrowed from financial institutions, have no credit history, and such people can start borrowing only if they can get a person with a good credit score to stand guarantee for their loans. In most cases, individuals who look for such loans will request their friends or family members to stand as guarantors.
The guarantor has to vouch for the loan applicant, and has to understand that in case the applicant defaults on loan payments, it is the guarantor who is expected by the lender to make the payments. In most cases, for this type of loans, no credit check is asked for, even though details of the credit check will be requested for. The status of this credit check will have no bearing on the loan, which will be approved depending on the credit rating of the guarantor. Loan amounts sanctioned, can be relatively large and may not be restricted, like payday loans are. Payday loans are another avenue for loans for people with poor credit scores.
These loans are unsecured loans and do not need any collateral to be pledged for the granting of the loan. The guarantor has to be a person with whom the borrower does not share any credit or bank accounts. There must be no court actions pending against the guarantor, and they must never have filed for bankruptcy. In most cases, the guarantor has to do nothing more than signing a few documents, and may have no further dealing with the lender, unless the borrower starts defaulting on payments. In some cases, lenders may insist on looking at bank statements as a part of the required documentation.
The process of obtaining loans is relatively short, and money can be made available to the bank account of the borrower within a few days of the submission of the required documents and their verification. These loans rarely have any prepayment penalties. It is quite common for people with poor credit scores to use such loans to improve their scores, as long as they make sure that they follow the repayment schedule laid down by the lender.
These loans do carry a risk for the guarantor
, and the person who stands guarantee for such loans must be aware of these before they append their signatures to any documents. They must be reasonably sure that the person for whom they are standing as the guarantee, has the capacity to repay the loans. In most cases of these loans, the borrower is known to the guarantor and may even be kin. It has often been seen, that such relationships can get affected when the borrower puts the onus of repayment on the guarantor.