You have many options when it comes to loans, even if your credit isn’t great or you have never taken out a loan before. One of these options is a guaranteed loan, which is available to just about anyone who can get someone else to sign as a guarantor for them on a loan. But there are certain risks that come with this type of loan, as with any loan, and you need to be aware of them before you can make an informed decision. Let’s take an in-depth look at guaranteed loans and whether they may be right for you.
The Lending Process for Guaranteed Loans
There are a few different ways a guaranteed loan can work. They all involve a third party taking over responsibility for loan repayment if you are not able to repay the loan on time, though.The two most common types of guaranteed loans are:
A loan signed by a friend or family member– For this type of loan, you simply ask that someone you know become the guarantor for your loan. This is quite a responsibility for them, and it means that they have to make all the payments if you are not able to.A loan signed by a government agency– This loan is handled entirely by the government on your behalf. They become your lender, taking over lending duties from the company that originally offered the loan. This type of loan will usually apply to loans being used to cover tertiary education, remodeling on a home, buying a new home or covering agricultural costs for a farm.Once you have found your guarantor, you will need to have the lender approve them for that position. If you are using a friend or family member as the guarantor, the lender may want to run a credit check on them or at least get some confirmation of their income.The lender basically considers both parties in this instance– you and the lender. It looks at both of your creditworthiness, and if yours doesn’t quite match up to its standards, then the third party can meet the requirements for you.
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