Guarantor Loans for Avoiding Credit Crunch

Guarantor Loans for Avoiding Credit Crunch

In the wake of the economic downturn and rising unemployment, a lot of people are finding themselves in a tight financial situation. Under such situations when businesses are closing and banks are no longer giving out any loan, it can be even more difficult to get something that would help you overcome your bad credit history. Guarantor loans are extremely helpful in this regard. With these loans the lender always has the assurance of the guarantor that in case the borrower fails to repay the loan amount, the guarantor would repay it to the lender. People can, in fact, improve their credit history using the opportunity.

Why is this loan required?

The economic sector that was worst hit in the wake of the recent economic downturn was the financial services. Banks on which people depended for specialist loan and for paying out mortgages either restricted the amount of the loan given out or they altogether stopped the loan. If any loans are given out, it is only awarded to a select group of the population which the banks feel are reliable and will not default on repayment. As a result, a lot of people who are in a tight financial position find usual avenues of loans closed. A person generally takes a loan when they are in an absolutely tight financial situation and must have immediate cash to pay off obligations. For people with a bad credit history who are in need of immediate funds, a bad credit loan will involve a high interest and charges. However, if they go for a guarantor loan the interest and other charges will be considerably less.

Guarantor loans are actually an ideal avenue of borrowing money for those who either have a bad credit history or have tried unsuccessfully to take a loan through usual routes. In this type of loan, the borrower does not have to worry about his credit rating. They need to get a person with good credit history that they know to act as their guarantor for the loan. The bank or lending institution takes account of the guarantor's credit history and standing, and issues the loan on the basis of the guarantor acting as surety. The lender has the assurance that if the actual borrower, who is on shaky financial grounds, is unable to repay, the guarantor would surely pay the amount.

How does the loan work?

The borrower or the applicant is supposed to take the loan with the help of the guarantor. The guarantor is the person who has a good credit history. Any person can act as the guarantor in case of guarantor loans. Normally it is a relative or a close friend, who trusts the applicant to not default on the loan, who acts as the guarantor.

The guarantor underwrites that the applicant would be able to pay back the money that they are borrowing, and if they fail to do so the guarantor accepts the responsibility of payment. Such a loan also improves the borrower's credit rating. This guarantorloan is an unsecured one, because if the applicant is unable to pay back the loan, the lender cannot pursue legal proceedings. If the loan is not paid for any reason, then the lender asks the guarantor to pay back the loan and the guarantor is bound to repay the loan on behalf of the borrower. This is because they had acted as surety at the time of issuing of the loan. Contrary to what people believe, the guarantor loan is not as expensive as the other unsecured loans in terms of interest rates and charges. This is a convenient and preferred way over bad credit loans with exorbitant rates of interest.

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