Unemployment makes it difficult for individuals to cover basic bills and essentials. Thus, one starts missing important payments and struggles with unplanned payments. It impacts the financial standing and doubles up debt troubles. Moreover, not having cash for unplanned payments may exaggerate the situation. A guarantor loan may help here.
A guarantor is a known one with a better income and credit score. Their financial standing may help you qualify for a loan immediately. A guarantor pays the dues until the unemployed person gets a new job. The blog discusses how guarantor loans for the unemployed work.
What do you mean by guarantor loans?
Guarantor loans are a type of personal loan that are typically for individuals who fail to meet basic loan affordability criteria. They can be individuals with no income, no credit history, or insufficient details that are required for the assessment. They work like a normal personal loan, where you borrow an amount and pay it back in regular instalments.
However, the key feature is a guarantor's involvement in a loan. They must agree to pay the loan if you cannot. A loan company consider the finances of both the individuals involved in the loan. It helps them analyse how much you can borrow given the requirement and affordability. Accordingly, one may borrow a higher amount to meet the goal.
Interest rates on guarantor loans are high. It remains around 34.5%-49.9%. These rates are higher than standard personal loans. It is because they are designed for borrowers with poor or no credit scores.
Can an unemployed individual get a guarantor loan?
Yes, an unemployed individual with basic part-time income or benefits income may get a guarantor loan. Unemployed with no income usually face rejection on a guarantor-based loan. Moreover, the unemployed on benefits like Income Support, JSA, ESA and Pension Credit are generally preferred over the Universal Credit as a reliable income source.
Thus, if you are on benefits and need a loan today, contact a direct lender for the loan. It may help you get a loan for your needs. Just make sure that the guarantor meets the basic criteria.
An individual guarantor must have a higher income and a better credit score than the prime borrower to get the guarantor loan.
Who can be a guarantor on a loan?
A person acting as a guarantor on a loan must meet the basic criteria mentioned below:
a) Minimum age requirement
One must typically be 21–25 years old or older to qualify as a guarantor. While basic eligibility is 18+, most lenders require a higher minimum age.
b) Residency status
One must be a UK resident with a permanent address in the country. This means:
• Live in the country with a fixed address
• Have income paid in sterling into a relevant bank account
• For rental agreements: Must be a valid resident
c) Credit history
One must have a good credit score with no bankruptcy, CCJ and major debt issues with no negative markers. Specifically:
• There should be no defaults recently
• The credit file should be clean, and it must pass the check
• The checks help one verify whether one can cover the loan payments
d) Income requirements
A guarantor must reveal a consistent and verified income from a full-time earning source (primarily). The income may vary according to the respective loan company’s requirements. However, you must basically need to earn 36 times the monthly rent.
For example, if the monthly rent is £800, one must earn £28000/year and £2,400 monthly to qualify as a guarantor on a loan. Here are other requirements that you need to meet:
• Loan companies accept the income from sources like self-employment, freelancing, pensions, employment and benefits
• One must provide valid income proof to qualify as a guarantor. It could be a salary slip, self-assessment, income from dividends/equity
• Income must be paid into a relevant bank account.
How much can you borrow with a homeowner and non-homeowner guarantor loan?
An individual with a homeowner guarantor may get £2000-£15000 on a loan. However, individuals may get up to £5000 with a non-homeowner guarantor on the loan.
How can a guarantor help an unemployed person with a loan?
Here are the aspects that a guarantor may help an unemployed person with the loan:
1) Help fetch better interest rates
A guarantor with good interest rates and a credit score may help the loan borrower qualify for affordable loans and terms. It may help one purchase an item, pay a bill or ensure costly repairs cheaply and without escalating the deadline.
2) Increases the chances of qualifying for a loan
It is impossible to get a loan as an unemployed person without a basic minimum income. Unemployed persons may get a loan with a part-time income and benefits. However, the income is insufficient to qualify for major goals.
Therefore, a guarantor with a fixed monthly income may help provide security for the loan payments. Thus, it reduces the risk associated with defaulting on the loan. Hence, one may qualify easily.
3) Reduces the chances of missing a payment
Having a guarantor on the loan reduces the chances of missing a payment on the loan. It is because if the prime borrower cannot pay, the guarantor must pay the dues. It thus helps one build a healthy credit history. It improves the credit score of both the individuals involved in a loan.
What steps should you consider before applying for a guarantor loan?
Here are some aspects that you must consider before applying for a guarantor-based loan:
Choose the right guarantor: Identify the right person with whom you share a great bond and who can support you financially. They must have a reliable income and good financial management.
Discuss the financial risks: Individuals involved in the loan must know the risks and benefits of the loan. It helps one manage the payments with good coordination
Calculate individual affordability: Check whether you can afford the payments and how much each can pay.
Compare/prequalify: Compare by pre-qualifying for the loan. It will help you know the approximate APR, interest, and total amount that you must pay.
Bottom line
A guarantor-based loan is ideal for an individual who struggles to get a loan due to unemployment, bad credit history or limited income. It helps you fetch better interest rates and terms which otherwise would be impossible. Individuals living on benefits may struggle to get a loan alone for a major purchase. Here, a guarantor-based loan may help.
