A guarantor loan is when someone else vouches for the person taking out a personal loan by promising to take over repayments of the loan should the borrower become unable to pay. This provides extra security to the lender as it makes it a less risky loan.
As with a regular personal loan, the lender provides the loan facility, but not the vehicle. The customer purchases the vehicle directly from the dealership, using the loan amount borrowed. Unlike other finance agreements, the customer immediately takes title/ownership of the vehicle.
When a customer signs a personal loan agreement, they agree to make regular payments to the lender, until the amount borrowed, plus interest, is repaid in full. As the customer has title to the vehicle, there are no mileage or usage restrictions on the vehicle that is financed.
The agreement can be ended at any time by settling all outstanding balances on the agreement and paying any necessary fees. In most cases, any surplus interest will be rebated to the customer by the finance company. If the Consumer Credit Act regulates the agreement, the minimum amount to be repaid is stipulated by the Finance and Leasing Association.
What Are the Benefits of a Guarantor Loan?
The main advantage of a guarantor loan is that if you have a guarantor for any money you borrow, there is a higher chance of a successful loan application. Having the backing of a guarantor also makes it more likely that the lender will loan a larger amount.
A guarantor loan allows those with poor credit history to add security to their repayments and so are a great option for those with bad credit.