Guarantor Loans: Quick and Easy Access to Cash
Borrowers with bad credit can increase their chances of approval or secure better loan terms by adding a guarantor to their application. However, both the borrower and the guarantor should carefully consider the potential risks and drawbacks before proceeding. At Ready Payday Loans, we offer safer alternatives that don’t require a repayment guarantee.
Understanding Guarantor Loans
A guarantor loan is an unsecured loan that involves a third party who agrees to cover the repayments if the primary borrower fails to pay. The guarantor adds security, ensuring that the borrower meets monthly loan obligations.
People choose guarantor loans when they struggle with credit challenges and cannot qualify for standard personal loans. With a guarantor’s support, lenders face less risk, making it easier to offer better terms and approve applicants who might not qualify otherwise.
At Ready Payday Loans, we focus on providing accessible financial solutions. If you have credit issues, a guarantor loan can help you secure the funding you need.
How Guarantor Loans Function
The Application Process for Guarantor Loans
Guarantor loans function like traditional personal loans but require two applicants instead of one. The primary borrower applies with a family member, partner, or friend acting as the guarantor. Both individuals submit the required documentation and sign an agreement upon approval. This loan also appears on the guarantor’s credit report.
Loan Amount, Interest Rates, and Repayment Terms
Guarantor loans work like traditional personal loans but involve two applicants. The primary borrower applies with a family member, partner, or friend as the guarantor. Both applicants provide the necessary documents and sign an agreement upon approval. The loan also appears on the guarantor’s credit report.
Guarantor’s Responsibility and Rights
If the borrower misses payments, the guarantor must repay the loan. However, the guarantor cannot use the loaned money or claim ownership of assets bought with it.
Who Is Eligible to Be a Guarantor for a Loan?
Typically, borrowers ask family members, spouses, or close friends to act as guarantors for their loan agreements. In the case of business loans, a business partner may also serve as a guarantor. Regardless of the individual you choose for this role, they must meet certain essential criteria.
Age Eligibility
A guarantor must be at least 18 years old, though some lenders may require a minimum age of 21 or 22. A government-issued ID or driver’s license can serve as proof of age and identity.
Residency Requirements
Lenders generally require guarantors to be legal US citizens or permanent residents. To verify residency, a guarantor will need to provide supporting documents such as a mortgage or rental agreement, or utility bills.
Financial Stability
A guarantor must demonstrate financial stability to cover the loan in case the primary borrower defaults. As such, the guarantor’s income will be closely assessed, along with any personal debts they may have.
Creditworthiness
If a lender has a minimum credit score requirement, the guarantor must meet this criterion as well as the primary borrower. Typically, a guarantor will need to have a higher FICO score to secure the loan.
Helpful Advice:
Regardless of lender requirements, choose a guarantor with a strong credit history, stable employment, and a higher income than yours. This will enhance your application’s credibility and increase your chances of approval.
Different Types of Guarantors
When it comes to lending, guarantors typically fall into two main categories:
Limited Guarantors
A limited guarantor has a predefined financial obligation, meaning the lender can only require them to pay up to a specified amount if the primary borrower defaults. This limit is usually a fixed dollar amount agreed upon in advance.
Unlimited Guarantors
An unlimited guarantor is responsible for covering the full outstanding loan balance, including interest and legal fees. If they also fail to make payments, the lender may take legal action to claim their assets.
However, the term “guarantor” extends beyond personal loans. Lease guarantors co-sign rental agreements to vouch for a tenant while certifying guarantors confirm the identity of individuals applying for jobs or passports. In these cases, guarantors do not bear financial responsibility.
Advantages and Disadvantages of Guarantor Loans
Like any borrowing option, guarantor loans come with both benefits and risks. Understanding these factors can help you make an informed decision.
Pros:
Higher Approval Chances – If you have a poor credit history and cannot qualify for a standard personal loan, having a guarantor can improve your credibility in the eyes of lenders.
Better Loan Terms – A guarantor with strong credit and a stable income can help you secure lower interest rates, a higher loan amount, and more flexible repayment terms.
Credit Score Improvement – Making timely repayments on a guarantor loan can positively impact your credit score, improving your chances of qualifying for better financial products in the future.
Cons:
Potential Strain on Relationships – If you default on your loan, your guarantor will be responsible for the repayments, which can create tension or financial stress in your relationship.
Credit and Financial Risks – Since a guarantor loan is a long-term obligation, the co-signer may face financial difficulties they weren’t prepared for. Additionally, missed payments can negatively affect both your credit scores.
No Ownership Rights – Even if the guarantor makes loan repayments on your behalf, they have no legal claim to the borrowed funds or any assets purchased with the loan.
Higher Costs and Limited Availability – Guarantor loans often come with higher interest rates than traditional personal loans. Additionally, they are less commonly offered by lenders, making them harder to find.
Guarantor vs. Co-Signer vs. Co-Borrower: Key Differences
A guarantor and a co-signer serve similar roles in securing a loan agreement, helping the primary borrower qualify for financing or obtain better terms. Neither has access to the borrowed funds nor shares ownership of any assets purchased with the loan.
However, their financial responsibility differs. A co-signer is liable for every missed payment, while a guarantor only assumes responsibility if the borrower defaults entirely.
A co-borrower, on the other hand, is part of a joint loan application and shares equal responsibility for repayments. Unlike guarantors or co-signers, co-borrowers contribute to payments from the start and have access to the loan funds or any property purchased with them.
Ready Payday Loans Alternatives to Guarantor Loans for Bad Credit
While guarantor loans have their benefits, they may not be the right fit for everyone. If you need an alternative, consider borrowing through Ready Payday Loans. Our lending partners provide fast and accessible loan options for borrowers with all types of credit histories.
We work with multiple lenders offering unsecured loans with competitive fixed rates and same-day or next-day funding. The online application takes just five minutes, allowing us to match you with a loan that best fits your financial needs.
Here are the loan options available through Ready Payday Loans.
Cash Advance Loans
Cash advance loans are small, short-term financing options designed to cover unexpected expenses or minor financial emergencies. Depending on your state regulations and income, you can borrow up to $1,000 and repay the loan with your next paycheck. Since these loans do not require a hard credit check, approval decisions are typically made within minutes. If approved, the funds are deposited into your bank account within one business day.
However, it is important to consider the cost. Cash advance loans often come with higher fees, typically ranging from $10 to $30 per $100 borrowed. This can result in an annual percentage rate (APR) exceeding 400%.
Installment Loans
Installment loans are a type of personal loan designed for borrowers with bad credit, allowing them to spread repayment over several months or years. Once approved, you receive the full loan amount upfront and repay it through fixed monthly installments. Loan terms range from 2 to 24 months, with a maximum borrowing limit of $5,000.
APRs for installment loans typically range from 16% to 100%. While these loans provide greater flexibility, they may also lead to higher overall repayment costs. To manage expenses effectively, it is important to choose a repayment period that balances affordable monthly payments with a reasonable total loan cost.
Additional Loan Alternatives
If the options above do not meet your current financial needs, consider these alternative solutions:
- Secured Loans – These loans require collateral, such as a valuable asset, to back your repayment. Offering collateral can help you secure better loan terms without needing a third party. However, failure to repay the loan on time may result in losing your asset.
- Family Loans – Borrowing from family members can provide financial relief without additional fees or strict requirements. Be sure to establish clear terms and adhere to the agreement to maintain trust.
- Loans from Credit Unions – Credit unions operate as nonprofit institutions, often offering lower interest rates and more lenient lending criteria. However, membership is required to access their financial products.
- Peer-to-Peer (P2P) Loans – Online P2P lending platforms connect borrowers with individual investors willing to offer loans. These options often have flexible terms and may be more accessible for those with credit challenges.
- Lines of Credit – Some lenders offer credit lines to borrowers with imperfect credit, without requiring a guarantor or collateral. You can borrow within a set limit, repay the amount used within the billing cycle, and access funds again as needed. Interest is only charged on the amount withdrawn.
Regardless of the loan type you choose, responsible borrowing is essential. Always ensure the terms are manageable and only borrow what you can afford. At Ready Payday Loans, we can help you find a suitable financing option tailored to your needs.
FAQs
How Much Do Guarantor Loans Cost?
Guarantor loan APRs typically range from 5.99% to 35.99%. However, for borrowers with bad credit, interest rates may be higher, reaching around 40% to 50%. The exact cost of your loan will depend on factors such as the lender’s terms, your state regulations, and the credit scores of both you and your guarantor.
What to Do If You Can’t Repay a Loan on Time?
If you can’t make a payment on your guarantor loan, inform your guarantor immediately, as they will be responsible for covering the debt. It’s also essential to contact your lender as soon as possible to explore alternative repayment options or adjustments to your loan terms. Communicating promptly can help avoid additional fees and financial difficulties.
What Is the Maximum Amount I Can Borrow with a Guarantor?
The loan amount for a guarantor loan typically ranges from $1,000 to $100,000. The exact amount you can borrow depends on various factors, including the lender’s limits, as well as the income and credit scores of both you and your guarantor.
What Are the Key Qualities to Look for in a Guarantor?
Ideally, a guarantor should have a stable income sufficient to cover potential loan payments, a good to excellent credit score, and a debt-to-income ratio of 43% or lower.
What Happens If a Guarantor Can’t Make My Loan Payments?
If a guarantor is unable to make loan payments, it will be considered a breach of the loan terms. As a result, the guarantor may face additional fees, the repossession of assets, or even legal action.
Does Being a Guarantor Affect Your Credit Score?
A guarantor’s credit score will not be impacted as long as the primary borrower meets their payment obligations. If the primary borrower defaults and the guarantor continues to make repayments as agreed, the guarantor’s FICO score may improve. However, if the guarantor misses or delays payments, their credit score may decrease.
Can I Get a Loan for Bad Credit Without a Guarantor?
Yes, there are several loan options available for individuals with bad credit that don’t require a guarantor or additional security. You can also apply for bad credit loans through Ready Payday Loans by completing a simple application form.
Does Ready Payday Loans Perform Credit Checks?
Loans offered through Ready Payday Loans typically involve only a soft credit check. Our affiliated partners do not conduct hard inquiries through major credit bureaus, ensuring that your credit score remains unaffected.