The checks carried out by guarantor lenders
The lenders we feature will always carry out a series of checks with the borrower and the guarantor before granting a loan of up to £7,500. The customer will typically fill in an online application which takes around 5 minutes and they will be asked to fill in details about themselves including their age, residence, employment and expenditure. It is important for the lender to carry out various checks in order to ensure the customer is eligible for a loan and can afford repayment.
If the lender gives the borrower a loan which they cannot afford to repay, there will be added charges for late repayment and it will cause the customer to be worse off as a result. The lenders we work with follow the Treating Customers Fairly (TCF) legislation which ensures the responsibility to carry out checks in order to do the right thing for the customer – whether it is funding or declining their loan. Below we discuss some of the most important checks that the lenders will carry out before granting a customer a loan.
The Credit Checks Run by Guarantor Lenders
Credit checks play an important role in the guarantor loan application process. The guarantor lenders work with credit rating agencies such as a Experian and Equifax and they will run a soft search on the credit file of both the borrower and the person who is going to be the guarantor. This soft search will not leave a visible footprint on either of the person’s credit file, so no other company will know that they have applied for a guarantor loan from this lender. This soft search is still able to decipher whether the person has good or bad credit. The reason that the credit check is so important is because if the lender can determine that the guarantor has a good credit rating, they are far more likely to grant the loan. The lender is a lot more trusting if the guarantor has good credit and they are willing to enter into an agreement with the borrower. This makes the lender feel much more confident that they can retrieve the repayment if the borrower cannot repay and so no further credit checking is required.
It is for this reason that applicants with bad credit have a good chance of getting a guarantor loan provided that they have a guarantor with a good credit rating. If the borrower can prove that they are a good customer by repaying their loan on time, the information will be sent by the lender to the credit reference agency and it will improve their credit rating. For more information, visit ‘how a guarantor loan can help your credit rating.’
Affordability Checks and What They Mean
Affordability checks are all about matching how much the customer wishes to borrow and how much they can afford to repay. Simply because the customer wants to borrow the maximum of £7,500 doesn’t necessarily mean that this is the best amount for them to borrow. If the customer borrows too much and cannot afford to repay, it will add leave to serious financial problems. So the guarantor loan company will need to assess the customer’s income and outgoings to understand whether they can afford a loan at the moment and how much they should be allowed to borrow.
Examples of affordability checks include asking the customer in the application how much they earn each month and how often they get paid. Further questions include asking what their monthly expenses are including credit cards, rent and other loans. After the application has been made, requesting a copy of the applicant’s pay-slip or bank statement is a good way to understand how much the customer earns. Affordability checks which are well carried out will mean that the borrower is given a suitable amount that they are able to repay – this might involve changing the amount they requested and offering a lower amount. Similarly, well executed affordability checks will mean that perhaps the customer cannot afford repayment and is therefore not eligible for a loan.
A Quick Phone Call to Confirm a Few Details
Once the online application has been completed and the lender is happy with their first initial checks, they will usually carry out a phone call to both the borrower and the guarantor. This short phone call allows the lender to confirm basic details and ensure that both parties are aware of the risks of the loan if it is not repaid on time. Above all, the guarantor is responsible to repay the loan if the borrower defaults and this could be hundreds of pounds in repayment. Therefore, this phone call allows both parties to fully understand the implications of the guarantor loan.
Being able to speak on the phone beforehand gives the lender reassurance that if the borrower does not pay on time, they should be able to reach them on the same number and discuss repayment options. The loan will not be processed until a phone call to both parties has been made.
The Importance of Your History and Trust Rating
The lender will look very carefully at your loan history whether it is through a soft credit check or the history of loans you have had with their company. A lot of the lenders we feature have their own ‘trust rating’ which increases the more loans that you repay on time. So by demonstrating that you are a good customer by repaying their loans on time, it will make the process much faster to get a new loan and you may be eligible to apply for a higher amount because the lender believes that you are less risk. By comparison, if you struggled to repay a previous loan and it took you a long time to clear your debts, this may affect your ‘trust rating’ and make it harder to access the finance you require.
Funds are Transferred to the Guarantor First
As a fraud prevention measure, a successful application is funded to the guarantor’s debit account first. This proves that there is actually another person involved in the guarantor loan. At this point, the guarantor can decide to go ahead with the loan and transfer the money to the main borrower. This confirms that the guarantor knows about the loan and is an active participant in the transaction. If he chooses to change his mind and does not want to go ahead, he can transfer the funds back to the lender and no one will be charged anything, provided it is sent back in less than 10 days.
There are of course other checks that the lenders will carry out but these are usually confidential to each lender and may involve a specific algorithm that the lender has created. However, these checks we have listed above certainly provide more insight into the checks that guarantor lenders carry out. The checks are a very necessary precaution to ensure the right product for the right customer so that they can afford the amount they are asked to repay within a realistic timeframe.