Guarantor loans are an excellent form of borrowing especially in times of recession and economic downturn. At these times the banks and other financial institutions become extremely sceptical of the ability of their potential borrowers to repay their loans. If someone has a bad credit history then guarantor loans are the best options for them to secure immediate funding on favourable terms. The other option is to go for a totally unsecured bad credit loan, so termed because it is a high risk loan given out to people with bad credit histories and with whom chances of default are pretty high. In such loans the rate of interest and other fixed charges are very high. The amount one can borrow is also low and repayment has to be fast. Payday loans or logbook loans are such loans and they have exorbitant charges and interest rates.

Banks are secured creditors and they hand over cash with simple solutions to the borrower. However, the banks also look for a repayment guarantee. Guarantor loans are typically ideal for those who have earlier run into problem with their credit. They can improve their credit record too, if the repayment is done properly.

Guarantor loans involve a third person. This third person must have a good credit history. They are usually someone who own a home, earn over £800 and are also between 23 and 70 years of age. In such an ideal case, the typical amount that will be granted to the borrower is about £5000. However, the amount would depend on the assessment of the credit history of the guarantor and several risk factors. If the guarantor himself has taken a loan or mortgaged his property then the banks will take this factor into consideration. The role of the guarantor within the entire contract is quite simple. They usually do not hear from the creditor if the applicant is able to pay back the loan in time. However, if the applicant fails to pay back the amount within the time frame, then under the agreement of the guarantor loans, the guarantor is liable to pay the loan amount and also the interest and all other charges.

Unlike the unsecured loans, where the applicant alone is liable for all charges regarding the loan, under the guarantor loan the guarantor becomes liable for repayment as they have stood as surety. It is a heavy responsibility and this is why only those who know the applicant closely enough would agree to be the guarantor for such type of loans.

Under the current situation, it is seen that banks are moving away from providing heavy cash to people. The banks are in fact ready to pay it to the companies, who in turn lend the money to the people. However, banks are not prepared to directly lend money to the applicant, especially on an unsecured basis.

With unsecured loans like payday loans, the amount will be restricted, the repayment period quite short and the interest rate extremely high, along with other charges. Defaulting or delaying payment will result in still more charges being added on and the borrower will be at high risk of ending up paying many times more the amount they have borrowed. So the borrower needs to consider all terms carefully before signing the agreement for such a loan. This loan should be considered as a short term, stop gap arrangement only and adequate cash flow should be in place to meet commitments.

In conclusion it can be said that, if possible, a person should always prefer guarantor loans over some unsecured loans.

Yoko Aiko writes about the finance industry and has a strong interest in no credit loans, bad credit loans, getting a gaurantor loan and other areas involved in poor credit loans.