If you are going to take out a loan, the chances of the loan being approved will increase if you have a guarantor. But how does that work? And how do you apply for a loan with a guarantor?
Apply for a loan with a guarantor as co-borrower
When you apply for a loan with a guarantor, you will often be able to borrow a larger sum than you would alone.
This is because the lender gets extra security, as they now have two people responsible for the repayment of the loan.
A guarantor is a person who is jointly responsible for ensuring that the loan is paid.
This person therefore agrees to guarantee the repayment of the loan on behalf of the borrower.
The guarantor will be held liable if the loan defaults, unlike a co-borrower, who will be liable for the entire loan on an equal footing with the main borrower.
Read more about co-borrower here.
Wondering who can act as a guarantor? You can read more about it here!
How to apply for a loan with a guarantor?
- Submit a loan application
You and the guarantor must complete a loan application together. You will provide information about your own finances, and the guarantor will provide information about their finances. This usually includes income, debt obligations and any assets.
- Credit assessment
The lender will perform a credit assessment of both you and the guarantor. This involves checking the credit score and credit history of both parties to assess the risk associated with the loan.
- Loan amount and conditions
Based on the overall creditworthiness of you and the guarantor, the lender will determine the maximum loan amount and the financial conditions of the loan, including interest rate, repayment period and any fees or charges.
- The guarantor’s responsibility
If you are unable to repay the loan, the lender may require the guarantor to pay the loan on your behalf. This can affect the guarantor’s creditworthiness and financial situation. Providing a surety for others, whether it is your cohabitant, children, family or friends is a major responsibility and must therefore be carefully considered.
- Agreement and signing
Once the terms of the loan have been determined and accepted by both parties, you and the guarantor will sign a loan agreement describing the terms and obligations of the loan. It is important to read and understand the agreement thoroughly before signing.
- Loan disbursement
After the agreement has been signed, the lender will disburse the loan amount to you and you can use the money for, for example, buying property or financing a car.
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