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What is a Loan Guarantor?

When a person takes out a loan, the lender verifies his or her income and ability to pay the loan. However, not all borrowers pass this requirement, thus the lender or bank will ask the borrower to provide a guarantor for the loan. This is usually the case if the loan officer discerns that the borrower has poor, weak or zero credit. A loan guarantor is similar to a loan cosigner, who is basically obligated to settle the debt in case the principal borrower cannot.

Having a guarantor for the loan somehow reduces the risk of the lender in case of non-payment. This means in case the borrower defaults loan payments, the guarantor will be deemed responsible for settling the remaining debt. The guarantor must be ready to take over the debt as indicated in the loan agreement which he or she co-signed.

Being a loan guarantor is not easy – the lender will go after you in case you agreed to be a guarantor for a loan. If someone asks you to become a guarantor for a loan, remember that a defaulted loan will also affect your credit negatively which can have serious repercussions in your ability to take out a loan someday.

What Happens If You Default on the Loan?

In case the borrower defaults on his or her loan, your relationship can be seriously affected. Some lenders will require a guarantor to attach his or her property to the loan, which means they can seize the asset in case of non-payment. Before agreeing to become a guarantor, talk with the borrower so that you can assess if you are indeed willing to take on such responsibility.

If you’re thinking of taking out a £25,000 loan, it is important to know beforehand what your monthly repayments are going to be. This helps you determine whether the costs will be within your means to afford or if there may be a need for you to consider borrowing a smaller amount to make smaller repayments.

Why monthly repayments matter

You’ll want to know how much the monthly repayments are so you can compare it with the monthly income you are getting and the other monthly expenses that you must cover. It is a good thing though that there are online loan calculators that most lenders provide in their websites these days that will give you a rough estimate on what the repayments are going to be. This is also one way for you to compare offers from other lenders.

Loan types and calculations

When calculating payments, consider the type of loan you are interested in first. Different loans have different calculations. For instance, there are loans that are interest-only where you do not really pay the loan in its early years, but you cover the interest rates instead. There are amortising loans too where you pay the balance over a specific period.

Consider total loan cost and interest

While it is important to know what the monthly payments are to determine whether the loan costs is within your means, it should not be the only thing that you must focus on. Among the important details that you should also consider if a £25,000 loan is something you can afford include the purchase price, the interest rate you are paying for the entirety of the loan term, and the fees involved for borrowing money. This helps you compare offers especially if you are considering a number of lender offers and determining which ones to accept. 

Loan calculator tips

When using a calculator to work out what the loan costs are going to be, take into account how much you want to borrow. There are lenders that are going to charge more interest on smaller loans so, find the sweet spot on how much you should borrow to get the ideal loan rates and fees.

Consider how long you will need to really the amount as well. Generally, you can save more when you choose shorter terms. However, this might mean paying a larger monthly repayment and not everybody may be able to afford that. Then there is also the interest rate.

When using the calculator, it helps to key in different loan terms to get an idea of the difference on the costs involved depending on how short or long you choose the loan term to be. Don’t also forget to factor in early repayment charges, late repayment fees, and arrangement fees when making your decision later.

Payment Method?

Once funds are available, we send it directly to your checking account that is registered during your application. You should be able to receive the funds in a just a few minutes to an hour. No need for complicated documents or extra requirements. We’ll send it right away.