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When a loan agreement involves a third party who guarantees the loan, it is referred to as a guarantor loan. Often, guarantor loans are made when an individual has a short credit history or poor credit. In such a case, a lending institution might deny a loan because the borrower represents too much of a risk. If a guarantor is willing to take on the responsibility of repaying the loan in the event that the borrower defaults, however, a lender may be more willing to grant the loan. Usually, guarantor loans involve written agreements that are signed by not only the borrower, but also the guarantor.
Guarantor loans are a type of lending situation in which a third party guarantees that a loan will be repaid. With this type of loan, the borrower is responsible for repayment. In the event that the borrower fails to repay the loan, however, the third party who guaranteed the loan is then responsible. Often, people seek guarantor loans because they have problems qualifying for loans on their own. For example, this could prove to be a desirable option in the event that a person cannot qualify for a loan because he has a short credit history, bad credit, or too little income.
There are many types of guarantor loans a person can seek. Since the term guarantor loan only applies to the fact that a third party guarantees repayment, the term is suited for just about any type of loan. For example, a guarantor may help a person obtain a student loan, mortgage, or car loan. These loans can be made for personal reasons or for the purpose of debt consolidation as well.
Anyone can be the guarantor of a loan for another party. Often, family members and friends help their loved ones in this manner. Sometimes businesses and other organizations guarantee loans as well. Typically, the requirements for a person who wants to become a loan guarantor are excellent credit and a means of repaying the loan in the event that the borrower defaults. In most cases, a lender considers a guarantor’s income and assets in deciding whether or not to grant a loan.
The promise of a borrower and a guarantor to repay a loan are not enough to finalize a loan and get money into the borrower’s hands, however. Instead, guarantor loans are finalized with detailed contracts that are signed by both the borrower and the guarantor. These contracts give the lender proof that he has the right to seek repayment from both the borrower and the guarantor in a default situation.
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