For anyone considering taking out a loan, it’s very important that they understand exactly what they are agreeing to.
The Financial Conduct Authority has recently made changes which make it harder for people to take out pay day loans. Individuals now have to prove that they are able to afford repayments of the loan, so that those who are unable to are not falling into heavy debt.
Whilst this is a good thing, it means that those who no longer qualify for pay day loans are turning to other means of getting finance when they find themselves in financial trouble.
Here at Debt Advisory Services (Scotland) Limited, we are dedicated financial advisors. We have years of experience in helping you to get on top of your debt, offering debt management solutions. We can also advise people on how to claim money back on mis-sold PPI.
This is why we think it’s important that people are aware of what they are taking on when it comes to the guarantor loan, which is relatively new.
What is it?
A guarantor loan is an unsecure loan that requires someone to act as a guarantor on behalf of the person taking out the loan. This is ideal for those who have bad credit or who are unable to take out a pay day loan.
The chosen guarantor can be anyone that isn’t financially tied to you – so it can’t be your spouse.
If the individual taking out the loan isn’t able to repay the money, or refuses to, the guarantor will be forced to repay the loan themselves.
These loans tend to last between 1-5 years and any amount up to £10,000 can be borrowed.
Is it Safe to be a Guarantor?
It’s extremely risky to agree to become a guarantor. Essentially, you are agreeing to take on someone else’s debt if they are suddenly unable to repay the money.
If the lender decides that they want the debt repaying soon, they have the right to come straight to you if they believe that the person who took out the loan will not be able to repay the money.
In effect, you could possibly end up in debt for someone else’s defaulted loan. In return, your credit rating will be affected.
Can you default or miss payments?
Defaulting on the loan or missing any payments will have consequences for the guarantor. If payments are missed, then that person will be chased up for the money.
Any interest that is charged may also be taken from both the person who took out the loan and their guarantor.
What should I do?
Before considering taking a loan out, you should seek financial advice from a debt management specialist. They will be able to advise you on the best route to take when it comes to managing your debt – and advise you on the dangers of taking out any kind of unsecure loan.
We urge anyone who is struggling with debt to seek professional advice so that they can avoid falling into any traps that these unregulated loans can have.
If you are suffering with debt and you can’t see a way out of it, please don’t worry as we can help you out. We have a team of helpful professionals that will be happy to answer any of your questions.
At Debt Advisory Services (Scotland) Limited, we work with you to figure out the best debt solution for you.
If you have any questions, please do not hesitate to contact us. You can ring us on 0800 011 2322 and a member of our caring staff will be happy to help.