The Use and Purpose of Guarantor Loans
Guarantor loans are loans that are made to people who are able to have another party cosign their loan so that if the borrower fails to pay his or her loan, the person who cosigns the note will be the party responsible for paying off the loan.
The reason that the guarantor is needed is that the borrower either has on credit, or his or her credit is so poor that there would be no other way that the person could get the loan.
One typical use of guarantor loan would be if a parent cosigned an note for a child to purchase a car, and so that the child could build his or her own credit history. For example, say and 18 year old child wants to buy a car and is working, but has no credit history. In a case such as this, the father could cosign the car note for his son, and as the son makes the payments from his earnings, he will be establishing credit.
However, if the son fails to make the payments or defaults, the lender then has the security of knowing that the father is responsible for the payment of the car note. Of course the person who is the guarantor has to have good credit, or the loan will, in most cases, not be approved.
In other cases, the people who would need to have a guarantor, would be people who would otherwise be rejected for a normal loan on their own. If they are applying for a loan from a bank or a credit union, and their credit history does not match up with the criteria that the lending institution requires, then they might be asked to seek a credible guarantor to back up the loan.
Although nothing in the credit world is etched in stone, if a credit-deficient borrower can find a guarantor with decent credit, it is likely that a loan can be made since the guarantor is there to pick up the slack if the borrower simply cannot handle the loan. As this is a good way to help someone out, it does carry significant risk for the guarantor.
If the borrower defaults on the note, the guarantor is stuck with paying off the note, and they may not even have the asset that was being purchased in the first place. If you are seriously considering becoming a guarantor, you should take your time and consider any alternatives that may be available. At least sit down with the borrower and discuss the issue, and see if there are any alternatives.
Just keep in mind that no matter how sincere and trustworthy the borrow seems, there is always the possibility that you are going to be stuck with paying off the note yourself. If you are willing to do that, and you truly wish to help the person find the best guarantor loans online and make use of them, then go ahead. If you have any pause as to any doubts, you should probably not become a guarantor for the note.