Are guarantor loans safe?

Posted byMairead Finlay | Category Blog | Date 01 August 2018

Are you considering getting a guarantor loan? Perhaps you are in a situation in which getting a typical loan from a mainstream provider proves considerably difficult. This can especially be the case if you have a history of bad credit (for example, you have CCJs or IVAs on your file, bankruptcy or a number of missed repayments for credit you have access to)  all of which can contribute to you receiving a negative credit score.

This is where deciding to get a guarantor loan could be a suitable solution in this set of circumstances. However, are you hesitant as you aren’t sure if they are safe to use? We provide you with all the advice you need to know about getting a guarantor loan, to reassure that you are completely protected when deciding to opt for this type of loan.

Guarantor loans are FCA regulated

One way in which you can be reassured that guarantor loans are safe to use is the fact that all lenders and brokers are regulated by the Financial Conduct Authority (FCA). The FCA took over from the Office of Fair Trading on 1st April 2014 when it comes to the regulation of consumer credit in the UK. All companies who provide loans or insurance have to adhere to the strict regulatory framework that has been implemented by the FCA. If the company in question is not compliant, then they will run the risk of no longer being able to trade in the industry, or risk being imprisoned or fined for not having the right authorisation in place.

After the FCA took over in 2014, a number of guarantor loan businesses were initially provided ‘interim permission (ie. a short-term license) to give them time to apply for full permission and become compliant. However, many of the companies previously leaders in the industry are no longer, having closed down due to not being able to comply with new FCA rules, put in place in order to help increase consumer confidence in a sector that has often been heavily criticised. In fact, there are only 12 authorised guarantor loan lenders that still exist, due to the much more scrupulous regulation that is in place.

Information is provided through a secure server

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Another way in which it is ensured that guarantor loans are safe for you as a customer is due to the fact that personal information you provide online is secured through https. This means your private details are kept encrypted, significantly reducing your risk of becoming a victim of fraud.

Any personal information that you provide to a guarantor loan provider is protected through a secure server HTTPS. This ensures that any data you provided is encrypted and secure between your own browser and the website that you are providing your details too. This means your online transaction is kept strictly confidential.

A guarantor backs your application

As the name of the loan states, a guarantor is part of this application process, and they help to ensure that you are protected when taking out a loan contract. This is because the person you nominate (who will have to undergo checks themselves prior to being approved as a guarantor in order to ensure that they would be able to make payments on your behalf if you missed them)  is your safeguard in the event that you find yourself in a position where you cannot pay back the loan.

Furthermore, if you are the one who is acting as the guarantor on someone’s behalf, then rest assured that you are also protected too. A lender will never take out money from a guarantors account immediately. If the borrower starts missing payments, the lender will always contact them first in order to discuss how to go forward and help them to determine the best way they can pay off their account prior to approaching you as the guarantor.

There is transparency over payments

As previously mentioned earlier in this article, the FCA has implemented new rules that mean that guarantor loan providers need to adhere to them in order to keep trading. This is largely due to the fact the FCA wants to ensure the fair and equal treatment of customers, to make sure that they aren’t taking advantage of lenders and that these companies are providing money to borrowers responsibly. One way that this has been ensured has been to provide a greater degree of transparency when it comes to loan agreements.

This provides you with greater security in a number of ways. For example, it provides you with far greater clarity in terms of what you will be expected to pay back in total if you decide to take out a guarantor loan, before you have made hard and fast decisions as to whether this would be the best option for you, meaning you can weigh up other alternatives alongside guarantor loans before deciding which to pick. Furthermore, you can also see if there are any additional charges that you need to take into consideration too (for example, interest rates or default charges) to decide if you are in a financially stable enough position to take out credit.

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The industry is stable

Guarantor loans are not a new phenomenon that has only been around for a year or so, which provides testament to the fact they are proven to not only work but are also safe to use too. In fact, the guarantor loan industry has been around for approximately 15 years online, outlasting many other gimmicky loan ideas and industries that have sprung up every few years. This can help to provide you with confidence in the fact that you are making an application for a loan that is known to be a formula that is very tried and tested.