How a guarantor loan application works

Posted byadmin | Category Useful Information | Date 26 February 2015

A guarantor loan application works slightly different to your typical personal or payday loan. This is not just a case of entering your details and getting a decision. The key difference is that you are entering the contact details of your guarantor too and based on the guarantor’s credit rating and employment will have a significant impact on whether your loan of up to £15,000 is approved or not.

Some lenders promote a 5 minute application e.g Guarantormyloan and Amigo but each lender has their own process and way of asking for information. So we have reviewed the application of some of the top guarantor lenders in the UK and we are pleased to offer a step by step guide on how a guarantor loan application works. Below is a guideline of how a guarantor loan application works and processes will vary from lender to lender.

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Step 1 – Provide your details

Lenders will ask you to complete a standard form. You will typically be asked to enter the amount you wish to borrow and how long for. This plays a big role in whether you will be offered a loan because lenders will run affordability checks to assess how much you can afford to borrow and how long you need to repay without being financially stretched.

You will also be asked to provide your name, email address, mobile number, login and password because you may have to come back and enter more details. Some lenders may ask what the purpose of your loan is e.g to pay off other loans, business, shopping or emergency. This gives the lender the chance to weed out applicants that want the loan for the wrong reasons and to pursue those with a genuine need.

It is always good to double check that the site you are entering your details is a legitimate company and is a direct guarantor lender. Ways to spot this include checking the site is on a secure server and this can be told by checking that the website address starts with https:// instead of http. This means that there is added encryption making the site harder to hack so your personal details will be kept safely.

Other ways to avoid working with a broker include looking out for calls to action which say ‘100% guaranteed’ and ‘our panel of lenders.’ It simply means that they are going to pass your details onto other companies.

Step 2 – Receive a phone call or email documents

The next steps usually involve the guarantor lender sending you an email with the terms and conditions of the loan and asking you to electronically sign the document either by typing in your name or via an SMS code. Alternatively, the lender could call you on the phone at their next best available opportunity in order to confirm a few details.

This part of the process is to verify that you exist, are eligible and that you are serious about taking out a guarantor loan. Since a typical lender carries out lots of affordability and credit checks, they usually have to incur a cost for doing so. Therefore, if they can confirm who is serious about taking out a loan first, they know that when they pay for checks, its because the applicant is really serious about the loan.

Part of the lender’s commitment to responsible lending ensures that they have to provide the details of their loan very clearly to the customer including costs, repayment schedule, collection practices and arrears. A guarantor loan can have quite serious implications if you cannot repay your loan on time. There is a lot of responsibility on the borrower to repay on time and if they don’t, the guarantor is required to cover the cost of repayment. There is also the negative impact on the credit rating of the borrower if they default on their repayments so they must be conscious of the various risks involved.

Step 3 – Enter guarantor details

Provided that the lender has approved your details so far, you will now be asked to enter the details of your guarantor. So to speed up the application, it helps if you already have a guarantor present and can provide basic details including their name, address and contact details (email address and phone number).

You have the choice to add another guarantor if your first one is not successful. Most lenders give you up to 45 days to find a new one that might be better suited, but once you reach the threshold, you have to reapply.

The quality of your guarantor makes a big difference in the approval rate of your application. Lenders tend to favour those borrowers who have a guarantor who have good credit scores and are homeowners. This is because homeowners must have demonstrated a strong credit rating in order to get a mortgage and also they are less likely to skip town if they have a property. Finding a good guarantor is important. Its usually someone that you have a close relationship who understands your finance and wants to help you out. Picking a guarantor with a good job, level of income and good credit rating can certainly increase the chance of your application being accepted.

Step 4 – Guarantor lender runs checks

The guarantor loan checks usually include a phone call to both the borrower and the guarantor to confirm that both parties agree to the loan and understand how the payment works i.e if the borrower misses repayment, the guarantor is required to step in and pay on the borrower’s behalf.

Behind the scenes, the company is running various credit checks and affordability checks to assess the credit rating of both individuals and determine whether they should be eligible for a loan. Using the likes of Experian, Equifax and CallCredit – the lender can take a peep into their credit history and see how well they have paid other types of loans in the past. The guarantor should have a better credit rating than the borrower to provide good back up for repayment.

The affordability measures are run by the lender to decide whether the borrower can afford to pay what they have asked to borrow. The loan provider should not seek to put the borrower under financial hardship so assessing the right amount is key.

Step 5 – Provide your debit card details

Assuming that you have passed all the necessary checks carried out by the lender and you are still interested in pursuing your application, the lender is likely to give you a loan offer which you can accept. The borrower and the lender will be required to provide their debit card details. Sadly, guarantor companies do not accept credit cards to deposit or collect funds. Debit cards are required in order to transfer the funds and they are collected from the same account using Continuous Payment Authority.

Step 6 – Funds are sent to your guarantor

The funds are usually transferred to the guarantor’s debit account. This gives the guarantor a final chance to change their mind if they want and it consolidates the relationship between the guarantor and the borrower (otherwise the borrower can try use a fake bank account in order to give themselves a loan).

There is typically a two-week ‘cooling period’ so that the the guarantor can change their mind and send the loan amount back to the lender without being charged. Or, they can decide to proceed and pass the funds onto the main beneficiary in one lump sum, instalments or however they see fit.

How our website works

So hopefully this step by step guide has given you an insight into how a guarantor loan application works. At Guarantor Loan Comparison, we are a brand new site that allows you to compare guarantor loans.

We are gradually building our site to include the top guarantor lenders in the UK and we want borrowers to be able to compare products easily. We are dedicated to offering a completely free service and we want to allow you to apply with the lenders directly and not be passed onto any third party companies who will take upfront fees. If you have any questions about guarantor loans or if you would like to get involved in the site, feel free to send us an email.