There are a lot of things that can come up unexpected and catch you off guard and if you can’t handle them financially, what can you do?
Banks are very strict when it comes to lending money. They take a look at everything and if you seem even the slightest as someone who will have difficulties to pay back the money you borrow, they will deny your application. The reason for this is there are two types of loans, secured and unsecured. Secured loans tie to your assets which the bank is allowed to seize if you can’t pay back what you borrowed, but unsecured don’t.
So, the banks will have to trust you to repay that money. Otherwise it will become a very complicated situation resulting in a long process of attempts by the bank to get their money back somehow. So, what can you do if you’re qualified as someone who is unable to repay the debt. Well, there is a thing called guarantor loan.
Guarantor loan is an unsecured loan which requires you to present somebody else who will act as a guarantor. This person who agrees to guarantee for you will, if you fail to pay back the money you borrowed, have to pay it for you. Guarantor loans can be anything between 1 and 10 thousand dollars and the agreement usually lasts for one to five years.
Now you may ask yourself, who can act as a guarantor?
Guarantor can be almost anyone. You don’t have to be related to this person, it can be your friend or a colleague. All that matters is that this person is financially linked to you.
The reason why a guarantor can be anyone is that the bank doesn’t care for your connection. All that the bank cares about is a good credit history and that the guarantor will be able to pay back what you borrowed. Also, the guarantor usually has to be over 21 years old.
The important part about guarantor loans is that the interest rate is high. There are variables that will determine how much that will be and there is no general interest rate. The rates are determined solely on your credit worthiness. The better it is, the less interest you will have to pay.
As we’ve mentioned above, the guarantor loan is an unsecured loan.
So what happens if you fail to pay it back in time?
The bank will ask your guarantor to come up with money. If you do so, the bank will probably take it to the court and try to get their money back through legal system. If you’re a person who has been asked to be a guarantor, it is very important that you are well informed about all the consequences and procedures. You are the one who will have to pay the debt should the borrower fail to do so. So be careful when you’re signing the deal and make sure that a person who you’re guaranteeing for is going to pay it back.